CEZ Ditched by Goldman Sachs Slumps to Lowest Price in 16 Months

  • Goldman cuts 2015-2018 earnings projections for Czech utility
  • Electricity price slumps to record low amid lackluster demand

CEZ AS tumbled to a 16-month low after Goldman Sachs Group Inc. recommended selling the shares of the biggest Czech power producer because of a worsening earnings outlook.

The stock slumped 2.8 percent to 508.4 koruna as of 11:04 a.m. in Prague, the third-worst performance on Wednesday in Europe’s Stoxx 600 Utilities Index, after Goldman analysts including Deborah Wilkens in London cut CEZ from hold in a report to clients. They reduced their forecasts for the utility’s earnings through 2018 and lowered the 12-month price target for the shares to 523 koruna from 700 koruna.

State-controlled CEZ has cut costs and announced plans to expand through acquisitions abroad at it struggles with other European utilities to stem a drop in profits amid lackluster demand for electricity. German power for next-year delivery, a European benchmark, fell to a record 29.75 euros a megawatt-hour yesterday.

“Although CEZ should benefit over time from our view of gradually rising power prices, we do not expect earnings to improve until 2018 due to forward hedging and rising carbon costs,” the analysts wrote. “We view the shares as fairly valued on our revised 12-month price target, which is unattractive relative to the average sector upside of circa 23 percent.”

Goldman’s projections don’t reflect the risk of CEZ undertaking “value-destructive acquisitions,” according to the report.

Earlier this week, analysts from Erste Group Bank AG to Fio Banka AS warned that CEZ may further reduce its full-year earnings guidance after four unplanned outages this quarter cut output from its largest nuclear plant.

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