CEZ announced that acquisition of 89% and 75% majority stakes in Polish power plants Elcho and Skawina respectively from PSEG has been finalized. CEZ also disclosed official price of acquisition which is EUR 202.5m and EUR 180.8m respectively, total EUR 383.5m. It is EUR 85.5m more than our initial estimate of EUR 298m. The deviation could have been due to higher than expected transaction fees and taxation at the buyer given the fact that the initial information provided was that PSEG’s net proceeds from the transaction were just above USD300m. Based on 2004 EBITDA of EUR 54m and adjusted net debt for 2004 of EUR 231m, the transaction implies an EV/EBITDA of 11.4x in comparison to 9.8x based on our estimate.
The EV/installed capacity equals 0.8x compared with the average of 1.6x and CEZ’s 1.0x (adjusted for the latest acquisition). Although the price on EV/EBITDA is higher than expected; we stress than CEZ acquired generation assets at a multiple at a half compared to the average of western peers. Also, the acquisition is viewed positively from a strategic point of view given the proximity to the Czech border allowing for synergies, restructuring, in particular at Skawina power plant and elimination of competitive threat to CEZ had the power plants been bought by another utility. We reiterate our Buy recommendation with fair value CZK 1,030.