Fitch Ratings released its electricity sector outlook for 2007. Fitch expects consolidation via cross-border acquisitions or creation of vertically integrated state-owned power groups topped with sizable investment needs and more debt-financing in the next 3 to 5 years. Fitch sees CEZ’s substantial headroom to increase leverage, while still maintaining its “A-“ rating. Majority of actions should take place in SEE region, especially Romania and Bulgaria and for CEE region in Poland, where four large integrated power groups are expected to emerge.
Rising prices of electricity will be driven by higher demand related to economic growth, shortfall of generation capacities and needs to service additional debts related to increased CAPEX needs.
Our view:
Fitch’s outlook just confirms what we as well as CEZ is expecting and have been communicating to the market in past. CEZ is well placed to benefit from such constellation, i.e. higher electricity prices going forward as well as increased debt-financing, which should help to optimize it cost of capital. We remain to be positive on CEZ and reiterate our fair value of CZK 1,105 with Buy recommendation.