Analysis of Cez 2014

Company: Cez

Business: A Czech electricity producer and distributer. They are also selling heat (a growing market) and gas to consumers. 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: 9.1

Here you can find the previous analysis of Cez.

The P/E of Cez is excellent with 9.1 and the P/B is ok with 1.2 which gives us a very clear buy according to Graham. The earnings to sales are excellent with 16% and the ROE is no longer so good with only 13.7%. The book to debt ratio is at 0.7 which is ok. in the last six years their yearly growth has been 3% which is ok but the trend is downwards and they need to break that. This still gives us a motivated P/E of 12 to 15 which means that Cez is still undervalued by the market. They pay a very nice dividend of 6.7% which however starts to represent a larger and larger cake of their earnings since it is now up at 61%! So they better start to improve the earnings during 2014 otherwise the future will be yet decreased dividend payments which neither I nor the Czech Republic will be happy about.

Conclusion: Graham still says yes to it and so do I but in comparison to my last analysis based on the 2012 annual report there start to be some question marks. ROE is dropping, growth has flattened out, P/E is increasing and the dividends start to be dangerously high compared to the earnings. So at the moment one should think twice about stepping in as a new shareholder in Cez because there are always other interesting companies to buy!

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