CEZ ‘Very Attractive’ to Ipopema After Falling to Eight-Year Low

CEZ AS, the biggest Czech utility, is “very attractive” after a slump to an eight-year low made its shares the cheapest among peers, according to Ipopema Securities SA.

Investors should buy CEZ on expectations it will rise to 519 koruna in the “mid-term” from 471 at yesterday’s close, John Milton, a Budapest-based director at the brokerage, wrote in an e-mail to clients today. They should abandon the trade if the stock drops to 460 koruna, he said.

CEZ has tumbled 37 percent in the past 12 months as power prices fell to record lows and on concern the Czech opposition will increase corporate taxes if it wins elections. The slump compares with an average 20 percent rally for a group of 15 utilities tracked by Bloomberg. CEZ trades at a four-year low of seven times projected earnings, the cheapest in the peer group.

“We are confident in CEZ,” Milton wrote. The risk-reward ratio, or the size of the projected return relative to the possible loss from the trade, is “very attractive” at 3.8 times, he said in the e-mail.

CEZ dropped 2.1 percent to 460.90 koruna today in Prague, cutting its 14-day relative strength index to 21. Readings below 30 signal in technical analysis the asset may be oversold and set for a rebound. CEZ fell to 16 percent below its 50-day moving average, according to data compiled by Bloomberg.

Czech President Milos Zeman today appointed Jiri Rusnok, a former finance minister, as caretaker premier and said the move is designed to trigger early elections after Premier Petr Necas resigned last week amid a spying and bribery scandal. The opposition Social Democrats, who lead in opinion polls, are planning special taxes on the biggest companies.

German Electricity

Electricity for next-year delivery in Germany, where CEZ exports part of its output, rose 0.7 percent today to 37.45 euros per megawatt-hour. The contract snapped a 2.8 percent slump in the previous six sessions to the lowest since Bloomberg began tracking the data in 2007.

“CEZ is beginning to have room for a rebound, although investors seem to be waiting to see how the talks about the next Czech government will evolve,” said Josef Nemy, an analyst at Komercni Banka AS in Prague, in e-mailed comments yesterday. He has a hold recommendation for CEZ with a 12-month price estimate of 498 koruna.

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