CEZ Drops Most in Three Weeks on Disappointing Earnings Outlook

Updated on
  • Czech utility suffered technical faults at Dukovany last year
  • CFO says `constantly falling' power prices to hurt 2016 profit

CEZ AS fell the most in three weeks after central Europe’s biggest power generator said profit will shrink by more than a third this year as electricity prices languish at their lowest level in more than a decade.

The stock fell as much as 2.4 percent in Prague. Net income adjusted for some one-time effects, the measure used by CEZ as a basis for dividend payments, is poised to slump 35 percent to 18 billion koruna ($739 million) this year, the utility said in its earnings statement on Tuesday. The gauge dropped 6.1 percent to 27.7 billion koruna last year.

“The outlook for this year is a disappointment that should overshadow better-than-expected results for 2015 in today’s trading,” Josef Nemy, an equity analyst at Komercni Banka AS in Prague, said by e-mail. He has a buy recommendation for CEZ shares.

State-controlled CEZ, which lost as much as $100 million from unplanned nuclear plant shutdowns last year, is grappling with a slump in electricity prices that has also hurt earnings at European peers including EON SE, RWE AG and Enel Enel SpA. Still, the Czech company’s adjusted net income for 2015 exceeded its own target of 27 billion koruna.

“Constantly falling power prices will be the main reason for lower profit this year,” Chief Financial Officer Martin Novak told journalists in Prague.

The stock pared earlier declines, sliding 1.8% to 385.90 koruna as of 12:10 p.m. in Prague. CEZ is down 13 percent this year, compared with a 5.8 percent retreat for Europe’s Stoxx 600 Utilities Index of 26 companies.

Earnings before interest, taxes, depreciation and amortization will probably drop 7.8 percent to 60 billion koruna this year, the company said in its earnings report Tuesday. That’s below 16 of 17 estimates in a Bloomberg survey of analysts.

CEZ’s Chief Executive Officer Daniel Benes said last month that “heads will roll” once the company completes an investigation into technical problems at its Dukovany nuclear power station that took three of the site’s four reactors out of service for several months in 2015. CEZ’s total output from nuclear power fell by 25 percent from a year earlier as a result of the faults on pipes in the reactors’ cooling systems.

The company will probably maintain its policy of distributing 60 percent to 80 percent of adjusted net income to shareholders, Benes told reporters.

Fourth-quarter net income jumped 39 percent from a year earlier to 3.9 billion koruna, helped by a 3.8 billion-koruna tax refund on carbon credits.

To limit the profit impact of falling prices, the company presold about 67 percent of its 2017 production at the average price of 31.5 euros per megawatt hour, 35 percent of 2018 output at the same price and 15 percent of 2019 output at 34.5 euros. Power for next-year delivery in Germany, where CEZ sells part of its output, traded at 21.61 euros on Tuesday, down 23 percent this year.