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"I would say MOL is a one-off deal where we have to look at the entire transaction, not just the acquisition of shares"
Martin Novak, CEZ |
Czech energy group CEZ claims the top position in the Euromoney CEE companies poll. This is its third year on top and not likely to be its last. "CEZ is very open to investors," says Peter Caputa, research analyst at BH Securities. "They are willing to do meetings whenever – they are easily the best in terms of [making] contact and communication in the Czech Republic and across the region."
Perhaps more impressive is CEZ’s rate of growth. In the past 12 months the Czech company, in which the government has a 67% stake, continued to grow its market share across the region, reaching, for example, 54% of the Turkish market by the end of 2007. The largest central European company, with a market capitalization of $45 billion, grew nearly 50% in 2007, with the electricity producer netting CZK42.76 billion ($2.75 billion) of profits.
Last month CEZ announced plans to double dividend payments, the group is also about to finalize its 10% share buyback programme. These decisions were in line with expectations as strong profits and cashflow, and a lack of acquisition opportunities, had left the company overcapitalized. More than CZK21 billion is earmarked for dividends, of which CZK15 billion will go to the state.
The company also started to sell a 7% stake of CEZ in the capital markets in August 2007. So far, 2.35% has been sold. But, as CEZ strengthens its financial structure and ebitda ratios, the management is focused on the next stage in its expansion plans.
Last year, CEZ announced plans to cooperate with Hungarian oil and gas company MOL. It has agreed to build gas-fired power plants at MOL refineries in Hungary and Slovakia – a move that will enable CEZ to enter these two attractive markets. In January, CEZ acquired a 7% stake in MOL. "This deal supports our intent and willingness to work with MOL on this joint venture. We also hope this joint venture can be extended from Hungary and Slovakia to Slovenia and Croatia in time," says Martin Novak, CFO of CEZ.
However, this move to take a minority stake in a company is not in line with CEZ’s past strategy. "I would say MOL is a one-off deal where we have to look at the entire transaction, not just the acquisition of shares – we don’t really look at minority stakes in companies normally. In privatizations we look to buy majority stakes," says the CFO. But Petr Novak, an analyst at Atlantik, a Czech brokerage firm, says: "There are fewer opportunities in the region for CEZ to buy majority stakes in and their bids are often very conservative and well below competitive bids." But one analyst thinks CEZ is right to place conservative bids. "Many of the biggest companies in the CEE region are in acquisition mode at the moment – even though it isn’t the best thing to do for many of them."
Now a new strategy is emerging. CEZ is starting to accept minority stakes in greenfield projects. The Czech company is in talks with the Russian government to work jointly on a greenfield gas-fired power plant outside Moscow – the talks are expected to finish in the coming weeks. In Romania, CEZ is one of six companies to work on the construction of units three and four of the Cernavod nuclear power plant – CEZ was awarded 15% of this deal. In January, CEZ also submitted bids to be strategic partner for the Romanian gas power plant project in Galaţi and Borzeşti.
In Bulgaria, CEZ bid for the construction of the Belene nuclear power plant and in Turkey, among other deals, it has submitted a tender to construct coal plants Afşin-Elbistan C and D – the deadline for bids is June 26.