Czech Equity Daily: 11/03/10, Orco, CEZ, Banks, IPO

Index PX: 1,177 points (up 0.5% d/d); volume: CZK 977bn (USD 52m)

Market comment
The PSE slowed down yesterday, as trading volumes did not even reach CZK 1bn. Despite that the PX Index managed to stay in the positive territory, gaining 0.49%. NWR was the main driver, closing up 2.5%. A number of domestic investors started to open short positions and demand was therefore covered mainly by foreign investors. In addition, the stock benefitted from another upgrade above CZK 200, this time from Goldman Sachs. Komercni banka also strengthened (1.8%; CZK 3,820). On the other hand, Erste Bank slightly declined (-0.19%, CZK 742.6). Also divided stocks had to face sellers. Telefonica fell by 0.29% to CZK 446.7, while Philip Morris lost 1% (CZK 10,138). No orders came for VIG (CZK 951).

Orco: Neutral (Analyst: Patrick Vyroubal)
Orco announced yesterday that the Paris court had extended the court protection against creditors until 25 June (by another three months). Orco is currently completing a rescue plan, which will be presented to its creditors at the end of March. The plan will be announced together with the earnings results for 2009 (30 March). Creditors will have one month to communicate their opinion (in the case of bondholders general meetings will be convened). It is up to the Paris court whether it will approve the rescue plan submitted by Orco. The second half-year period of court protection against creditors was to end on 25 March but the company has so far failed to reach agreement with bondholders (e.g. proposed conversion of debt into shares). Orco had previously said that the Paris court could decide to extend the maturity by up to 10 years, which would help Orco improve its cash flow. In the meantime, Orco has been able to restructure most of its bank loans. We assume that even in the case of successful restructuring Orco will decide to increase its capital, which would lead to a dilution effect for existing shareholders (dilution effect would be visible also in case of conversion of debt into shares).

CEZ: Neutral (Analyst: Petr Novak)
According to the Energy Regulatory Office, net demand for electricity in January 2010 reached 5.8 TWh, which represents 0.6% y/y growth. In month-on-month comparison, the demand rose by 8.0%. The growth was driven by colder weather than average. Overall, we expect that electricity demand in the CR will increase only slightly this year (by around 1%). This is in line with CEZ´s expectation (also 1%).

Banks (Analyst: Milan Lavicka)
The lower house of Parliament passed an amendment yesterday for doubling deposit insurance to EUR 100,000. The period for beginning the payout would also be shortened from three months to 20 days. The amendment is due to required harmonisation of the Czech legislation with EU directives. In addition, the premium paid by financial institutions to the Deposit Insurance Fund will increase 1.6 times the present level, i.e. to 0.16% of the volume of insured deposits in the case of banks and cooperative banks, and to 0.08% of the volume for building cooperatives. Last year Ceska sporitelna (CS) paid CZK 536m and Komercni banka (KB) approx. CZK 500m to the fund. The contributions to the fund will have an impact on the financials of approx. CZK 300m, which we consider relatively insignificant given the earnings levels (2.5 – 3.0% of full-year profits of CS and KB).

IPO (Analyst: Petr Novak)
According to HN daily, REN Power (member of Czech Coal) could enter the Prague bourse within the next three years, said the company´ s chief Vladimir Sistek, adding that a minority stake could be sold. REN Power operates solar power plants and manufactures solar panels. The present installed capacity is just 16 MW but by the end of the year the company would like to increase it by 7 MW in Northern Moravia. In the future, the company plans to produce electricity also from other renewable sources (water, wind and biomass). The potential IPO would bring in a small company with respect to volumes.

CR´s 4Q09 GDP: GDP structure

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