The Minister of Finance, Vlastimil Tlusty, suggested that CEZ should buy back the state’s 7% stake in CEZ, which is planned for sale in order to reduce the 2007 budget deficit. Note that ODS and CSSD agreed on the budget for 2007 subject to that both parties will negotiate on the sale of CEZ and will try to find alternative sources of finance (CSSD is against the privatization of CEZ). The former Finance Minster, Bohuslav Sobotka, mentioned that this option may be acceptable for CSSD. The Cabinet will deal with Tlusty’s proposal on November 10.
Our view:
We believe that a share-buy back in general would be positive for CEZ as it would improve its balance sheet and lower the WACC. At the same time, shareholders would gain on the difference between the current market price of CZK874/share and our fair value estimate of CZK1,075/ share (23% upside), in our view. We estimate that a 7% share buy-back would lift our fair value estimate by c3%. Note that CEZ would have to offer the share buy-back to all of its shareholders.