According the CTK, the Energy Regulator should announce an electricity price, together with heat and gas for retail customers for 2007 today. Note that CEZ’s wholesale base-load price for 2007 increased by 19.5% y/y to CZK1,244/MWh (70% of total wholesale price) and the price for seasonal products by 10.8% y/y to CZK1,549/MWh (30% of the total wholesale price). As a result, the average wholesale price for 2007 increased by 16.87% y/y to CZK1,342/MWh. As the wholesale price forms c40% of the retail price, we expect the retail price to increase by 7-8% y/y for 2007. The other components of the retail price form VAT, transmission, distribution costs and fees for renewable energy support.
Our view:
Given the 19.5% y/y increase in the wholesale base-load electricity price for 2007, we do not believe that the Regulatory office would allow CEZ to fully reflect the increased asset base of its distribution companies following their restructuring into the distribution fee (calculated on RAB – Regulatory Asset Base) and therefore do not expect the growth in the final retail to be significantly above 8% y/y. Nevertheless, we see further upside in CEZ and our recommendation remains Buy.