CEZ Group Overview

CEZ is one of the biggest companies in the Czech Republic and a leading energy group in Western and Central Europe. It is also dedicated to setting an example by making the energy sector more sustainable, environmentally friendly, and planet-conscious.  CEZ prioritises greater diversity, closer cooperation with communities, and providing customers with the most accommodating and energy-efficient technological solutions.

Sustainability and strategy

CEZ Group’s power generation relies on emission-free sources. The CEZ strategy, Clean Energy for Tomorrow, focuses on ambitious decarbonisation, the development of nuclear energy, and significantly increasing renewable sources of energy to meet their customers’ needs. Recently, CEZ announced that it would move forward its climate-neutrality commitment by ten years, targeting 2040.

Core business and innovation

In addition to emission-free production, CEZ’s core business includes energy distribution and sales. Promising areas for the company include supporting innovations and investments in clean-tech companies.

Ethical standards and corporate culture

CEZ Group follows strict ethical standards, taking a responsible approach towards employees, society, and the environment. Sustainable development, with a strong focus on the ESG (Environmental, Social, Governance) sphere, is an integral part of their company management.

CEZ Group promotes energy efficiency and new technologies while creating equal opportunities and professional growth for its employees. They focus on investments in modern technologies, science, and research. 

Center their corporate culture around security, sustained internal efficiency growth, and supporting innovations to enhance the growth of CEZ Group values.

They strive to create an environment for the professional growth of their 27,000 direct employees, who deliver energy and modern energy solutions to over 3.5 million customers.

The financial success of the CEZ Group also builds a foundation for the Czech Republic’s business environment, creating more than 140,000 jobs through subcontractors and business partners.

CEZ’s top owners are state or government

CEZ’s largest shareholders are state or government holding a 70% stake in the company. Individual investors make up 21% of the company’s shareholders

CEZ lists its stock on the Prague and Warsaw Stock Exchanges and includes it in the PX and WIG-CEE stock indices

Since its establishment, the company has paid hundreds of billions of crowns in dividends to its shareholders, including over 800 billion crowns to the Czech state.

Strategic direction

CEZ is rapidly advancing its transition to a future emission-free energy sector with its “VISION 2030 – Clean Energy for Tomorrow” strategy. This plan outlines CEZ Group’s strategic goals through to 2030, aligning with the European Union’s decarbonisation targets. It sets clear ambitions for corporate social responsibility and sustainable development, with a focus on maximising shareholder value.

Institutional ownership

Many institutions measure their performance against an index that reflects the local market, so they often focus on companies included in major indices.

Institutional investors hold around 6.5% of CEZ a. s., indicating some credibility amongst professional investors. However, this alone doesn’t guarantee stability; institutional investors can make poor investments like any other investor. For example, a big share price drop can occur if two large institutional investors try to sell their stock simultaneously.

Hedge funds and insider ownership

CEZ a. s. is not owned by hedge funds. Data indicates that the Czech Republic holds the largest share of CEZ, with 70% of the outstanding shares. This significant ownership provides substantial control over the company’s future. Belviport Trading Ltd. and PPF banka a.s., Asset Management Arm are the second and third largest shareholders, both holding 2.1% of the shares.

The definition of an insider can vary, but people generally consider board members as insiders. While management oversees business operations, the CEO, even if a board member, will answer to the board.

Insider ownership is often viewed positively when it indicates leadership are thinking like the company’s owners. However, high insider ownership can also give significant power to a small group within the company, which may be negative in certain situations.

Public ownership

With a 21% ownership, the public, primarily individual investors, holds notable influence over CEZ a. s. Although they may not fully control the company’s decisions, they can significantly influence how it operates.

Financial performance

Stock performance

CEZ a. s’ stock has performed well recently, increasing by 6.0% over the past three months. Typically, stock prices reflect a company’s financial performance in the long-term.

Return on equity (ROE) and earnings growth

Return on equity or ROE is a key factor for shareholders as it indicates how effectively their capital is being reinvested. It is a profitability ratio, which measures the rate of return on the capital invested by the company’s shareholders.

CEZ a. s’ ROE is higher than the industry average of 10%. This likely contributed to CEZ a. s’ significant 37% net income growth over the past five years. However, this growth could also be due to other factors, like high earnings retention or efficient management.

When comparing CEZ a. s’ net income growth to the industry average, the company outperforms with its growth rate exceeding the average industry growth of 11%. Earnings growth is a critical factor for valuing a company as it indicates future potential. Investors should assess whether the market has priced in the company’s expected earnings growth or decline to determine if the stock is poised for a bright or challenging future.

Is CEZ making efficient use of its profits?

CEZ a. s’ significant three-year median payout ratio of 95%, where it is retaining only 5.5% of its income, indicates that it has been able to achieve a high growth in earnings despite returning most of its income to shareholders.

The company’s commitment to sharing its profits with shareholders is evident from its consistent dividends for at least ten years. Analysts predict that CEZ a.s. will continue this trend, paying out approximately 81% of its profits over the next three years. Consequently, the company’s ROE is likely to remain stable, with analysts forecasting a future ROE of 12%.

Summary

In summary, CEZ appears to have some positive aspects to its business, particularly its high ROE, which likely contributed to its earnings growth. However, it’s important to note that the company reinvests very little of its profits, meaning investors may not fully benefit from its high rate of return. Additionally, industry analysts forecast that the company’s earnings growth will slow down in the near future.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.