Wood & Co. - pozitivní výsledek aukce není v ceně ČEZ ještě zahrnut

CEZ sold forward contracts for 4% of its 2006 electricity production at prices 14.82% higher y/y. CEZ will now propose 15% wholesale price increase for all 2006 production on Friday vs. 5-7% expected.

Conclusion: We now expect 2006 wholesale prices to increase by 10-15% y/y vs. our previous assumption of 5-7% increase, that means a positive impact on CEZ of CZK 30-42 per CEZ share. The 2006e el. price gap between Czech Republic (EUR 33/MWh) and Germany (EUR 45/MWh) will narrow to 35% with room for further convergence. Note that as of 2006 the electricity market in Czech Republic will be fully liberalized. We do not expect increased competition nor price pressure from the liberalization due the fact that foreigners cannot compete with CEZ's 35% cheaper electricity.

Recommendation: Pricing in conservative 10% el. price increase for 2006, we are increasing our target price for CEZ by CZK 30 per share. Our new target price of CZK 624.5 offers 17.3% upside. CEZ now trades at 16x PE06; 0.5x PEG; EUR 1mil/MW (EV/Capacity). BUY remains..

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