Saturday 22 February 2014

Analysis of Cez

A Czech electricity company

Company: Cez

Business: A Czech electricity producer and distributer. Besides from electricity sales they are also active with telecommunications, informatics, nuclear research, planning, construction and maintenance of energy facilities, mining raw materials, and processing energy by-products.

Active: Very active in the Czech Republic that is the home market with an increasing presence in several central and eastern European countries such as Poland, Bulgaria, Hungary, Slovakia, Rumania as well as in Turkey.

P/E: 7.3

contrarian values of P/E, P/B, ROE as well as dividend

The P/E of Cez is looking very juicy with 7.3 and the P/B is acceptable with 1.2 which gives us a very clear buy according to Graham. The earnings to sales are high with 19% and the ROE is also fully acceptable with 16.6. The book to debt ratio is ok with 0.7 compared to many other electricity companies that are usually down around 0.3. In the last five years they have had a yearly growth rate of 3.4% which is better than inflation so fully ok and this then gives us a motivated P/E of 13 to 16 which means that Cez today is undervalued by the market. They pay an excellent dividend of 7.1% which corresponds to 52% which for an electricity provider I see no issue with. However they decrease and increase the dividends based on their earnings and from the Q3 2013 report I think that they might go a little lower.

Conclusion: Graham likes this company and so do I! Most of the key values are indeed looking very nice as such and if one compare against E.On., RWE, Enel, EDF or BKW then they are truly excellent for the group of companies. Even if they go lower with the dividends I think this can be an interesting company to own for the long run and it will therefore be added to my Stocks of Interest list with the next update.

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