O2 Czech Republic Jumps to 15-Year High on MSCI Index Membership

  • Former phone monopoly returning to benchmark after six months
  • Price highest since May 2000 when adjusted for asset spinoff

O2 Czech Republic AS jumped to the highest price in 15 years as the phone and Internet company’s forthcoming addition to MSCI Inc.’s index drove demand from investors tracking the equity benchmark.

The shares surged 8.3 percent in Prague on Friday, with trading volume at almost 11 times the three-month daily average, after the index provider said late Thursday it would include the stock in the MSCI Czech Republic Index from Dec. 1, in the place of textile manufacturer Pegas Nonwovens SA.

The former phone monopoly returns to the index after its removal six months ago when a spinoff of network assets lowered its market capitalization and the value of shares available for trading below membership thresholds. But O2 has surged more than 300 percent since the business revamp, lifting its free-float to double that of Pegas.

“The inclusion in the prestigious index could boost demand,” Josef Nemy, an analyst at Komercni Banka AS in Prague, said by e-mail. He recommended buying O2 Czech on Thursday before the MSCI decision, setting a 12-month price projection of 251 koruna.

Rally Extended

The stock ended the week at 248 koruna, extending its rally since the June 1 spinoff to to 339 percent and valuing the company at 76.9 billion koruna ($3 billion). With historical prices adjusted for the effect of the spinoff, the current share value is the highest since May 2000, data compiled by Bloomberg show. Pegas slumped 7.5 percent to the lowest in seven months.

O2 Czech, in which billionaire Petr Kellner’s PPF Group NV owns almost 85 percent, expects this year’s profit to rise from an 11-year low, helped by the spinoff that has eased regulatory hurdles. The company last month announced a new policy to pay its full profit in dividends and said it would borrow money to finance a five-year share buyback program.

MSCI membership could create an additional “technical demand” for O2 Czech of about 2.3 billion koruna, an amount that typically changes hands over about 60 trading days, according to Martin Krajhanzl, an analyst at Erste Group Bank AG’s unit Ceska Sporitelna AS in Prague. The positive impact may be mitigated if some investors use the purchases by MSCI trackers to sell their holdings, he wrote in a report to clients earlier this week.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE