CEZ Rises as Profit Above Estimates Bolsters Dividend View

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CEZ AS rose in Prague trading after reporting second-quarter profit that topped analysts’ estimates, fueling speculation the biggest Czech power utility will maintain its dividend.

The shares climbed as much as 1 percent after CEZ said Tuesday in a statement net income rose to 7.9 billion koruna ($320 million) from 7.3 billion koruna a year earlier. That exceeded the 7 billion-koruna median estimate of 11 analysts surveyed by Bloomberg. The company kept its adjusted 2015 profit outlook at 27 billion koruna while lowering the forecast for earnings before interest, taxes, depreciation and amortization to 68 billion koruna from 70 billion koruna.

“The lower Ebitda is because of one-time items that won’t be repeated,” Bohumil Trampota, an analyst at J&T Banka AS in Prague, said by phone. “More important for the market is that they didn’t cut the profit expectation, which signals a solid dividend will be maintained.”

State-controlled CEZ has cut costs as it struggles with other European utilities to stem a decline in profits amid lackluster demand that’s depressing power prices. Second-quarter earnings got a boost after a court ordered the Railway Infrastructure Administration to pay the power supplier 1 billion koruna owed since 2010, according to the statement.

Government Stake

CEZ rose 0.7 percent to 582.5 koruna as of 3:51 p.m. in Prague, leading gains in the Stoxx Europe 600 Utilities Index of 26 companies, which slipped 1.1 percent. The company has a market value of 313.4 billion koruna. The government owns almost 70 percent of the shares.

The power producer will probably keep its dividend policy unchanged for several years, Chief Executive Office Daniel Benes told reporters in Prague. The company said in May it was raising the proportion of profit distributed to shareholders to as much as 80 percent from a previous maximum of 60 percent.

CEZ said it cut its Ebitda goal because of a delay in completing its new Ledvice coal-fired plant and a prolonged shutdown at the Temelin nuclear power station.

The utility remains “very interested” in Vattenfall AB’s German unit and expects a sale of the subsidiary to begin in September, Benes also said. The Czech company will refrain from bidding for Enel SpA’s assets in Slovakia until risks related to the construction of two new reactors at the Mochovce nuclear power station are removed, he said.

2017 Production

To limit the profit impact of falling prices, CEZ has presold about 78 percent of its 2016 power output for an average 35.5 euros ($39.28) a megawatt-hour and about 46 percent of 2017 production for 34 euros. German power for next-year delivery, a European benchmark, fell to a record 30.80 euros a megawatt-hour Monday and traded Tuesday at 31 euros, down 6.3 percent this year and compared with 52.05 euros at the end of 2010.

The confirmed profit outlook signals CEZ may pay 40 koruna a share from this year’s profit, unchanged from the prior three years, according to Josef Nemy, an analyst at Komercni Banka AS. Still, declining power prices and lower Ebitda may prompt the bank to cut its 719-koruna price projection and stop advising clients to buy the stock, he said in a note.

“Expectations of high dividends keep providing support for CEZ shares,” overshadowing the company’s “unsatisfactory operating results and a reduced Ebitda outlook,” Nemy said.

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