1. WEEKLY SUMMARY
May 30 - June 3, 2011
Close w/w (%) 3M (%) YTD (%) y/y (%) 52W Low 52W High
PX 1,232 -0.6 0.1 0.6 #N/A 1,100 1,276
CZK/EUR 24.33 0.8 0.2 3.3 6.4 23.99 26.02
CZK/USD 16.63 3.0 6.5 13.8 28.1 16.27 21.81
PRIBOR 6M 1.56% 0bp -1bp 0bp 3bps 1.47% 1.58%
10Y GB 3.75/20 3.64% -11bps -33bps -27bps -66bps 3.23% 4.35%
Prague Stock Exchange Close w/w (%)
AAA Auto 25.0 -2.4
CME 348 -6.3 CZK m PX Index
CEZ 900 -3.2 4,000 1,300
ECM 33 -4.9
Erste 843 0.9
Fortuna 134 3.8 3,000 1,250
KB 4,100 1.1
KITD 199 -5.2
NWR 240 -12.3 2,000 1,200
Orco 218 -4.6
Pegas 446 1.1
PMCR 9,460 2.3 1,000 1,150
TEF 417 1.3
Unipetrol 181 0.2
VIG 958 -0.4
0 1,100
Equity Bonds 6/05 13/05 20/05 27/05 3/06
CZK m 9,168 9,087
EUR m 374.4 371.6
Source: Bloomberg, PSE, ATLANTIK FT
HEADLINES ONE-WEEK OUTLOOK
CEZ Given the unfavourable macroeconomic data released last
- Shutdown at Temelin extended week (especially US monthly unemployment report) and the
- Ex-dividend day absence of new events, we still expect to see negative
- Managers sell company shares sentiment and potential profit-taking this week.
Pegas Fortuna is going ex-dividend today, 6 June (EUR 0.3 per
- Investment in Egypt worth EUR 55-60m share; 5.7% gross. div. yield). The situation around Sazka
will be still monitored, with a potential impact on Fortuna;
NWR
however, that should be already priced in.
- Majority owner to sell up to 16m shares
In case of CEZ, there will be on external factor – German
- Third closing date of share-for-share offer
parliament is to decide today on the future of the nuclear
Fortuna energy programme.
- Last cum-dividend day
NWR should know the outcome of the FTSE
- Offer for lottery activities of Sazka committee's review of the index on Wednesday (8
Economy June). The effect of potential inclusion of NWR in the index
- Weaker industrial output in April should be seen on 17 June. Due to an additional supply
- Trade balance surplus offset by high crude oil of shares by majority owner BXR of up to 16m pieces
prices (6.1% of the company's value), we consider this factor
neutral without an impact on the stock price.
Concerning macroeconomic events, the upcoming week will
be just the opposite of the previous week as regards the
number and the importance of macroeconomic releases.
Markets will probably follow FED's Beige Book
(Wednesday), which assesses the US economy and
provides an economic outlook. In Europe, the ECB meets
on Thursday. The interest rates are expected to be left
unchanged at 1.25%. The central bank's commentary will
be followed. For the time being, market expects interest
rates to be raised at the next meeting in July.
2. EQUITY MARKET – PRAGUE STOCK EXCHANGE
MARKET NEWS
The first week of June was marked by weak macroeconomic data, which triggered profit-taking. The domestic market was
no exception. The PX Index closed the week at 1,232 points, down 0.6% w/w. Investors followed US macroeconomic
data and rating agencies' announcements. For example, Moody´s mentioned a potential US rating downgrade if no
agreement is reached on budgetary needs and gradual budget deficit cuts. The anticipated US monthly unemployment
report came in below expectations (54 thousand jobs vs. exp. +162 thousand).
The local market monitored events around Sazka, which showed up in the stock price of Fortuna. The stock almost reached
CZK 150 during the week, finishing at CZK 134 (+3.8% w/w) as the biggest gainer of the week. NWR, by contrast, was
the most declining stock (-12.3% to CZK 240.3) after BXR (majority owner of NWR) offered up to 16m shares for sale to
meet investors' demand in anticipation of potential inclusion of the stock in the FTSE 250 index. As a result, the positive
effect of higher demand upon the potential inclusion was counterbalanced. In addition, the upcoming IPO of Polish peer
JSW (end of June) could be a potentially negative factor.
Index Close w/w (%) 3M (%) YTD (%) y/y (%) 52W Low 52W High
PX 1,232 -0.6 0.1 0.6 8.5 1,100 1,276
Wien (ATX) 2,764 0.6 -4.3 -4.8 21.9 2,217 3,001
Warsaw (WIG 20) 2,884 0.6 7.1 4.6 22.5 2,271 2,933
Budapest (BUX) 23,076 0.1 1.5 8.4 8.4 20,221 24,451
Euro Stoxx50 2,789 -1.1 -6.5 -0.6 9.2 2,508 3,068
Dow Jones 12,151 -2.3 0.8 5.0 22.3 9,686 12,811
S&P500 1,300 -2.3 -0.5 3.4 22.1 1,023 1,364
Nasdaq 2,733 -2.3 -0.2 2.6 23.1 2,092 2,874
COMPANY NEWS
CEZ
nd
The ongoing shut-down of the 2 unit of Temelin will be extended by two weeks vs. the original plan. The delay is
due to technical problems. We had already informed about this last week and consider the news neutral.
CEZ's shares went ex-dividend on 3 June. The dividend approved by the general meeting from 2010 profit is CZK
50/share (5.30% gross div. yield). The dividend record day is on 7 June and the payment day falls on 1 August.
According to the Czech National Bank, CEZ's managers sold in aggregate 450,000 shares of the company from 27
May to 1 June 2011. CEO Martin Roman was one of the sellers. Sale of shares by members of management could be
perceived negatively by the market but we believe that given the significant stock price growth in the past few months
such sale could be expected.
Pegas Nonwovens
Pegas Nonwovens announced an investment in a new production facility in Egypt. Initial costs are estimated to
reach EUR 55-60m. The investment depends on an agreement with a major customer, which is interested in the
company's production in the Middle East. The contract should be signed within the next few months. According to a press
release, in the first phase, Pegas plans to build a production line with an annual capacity of 20kt, which should be
launched in 2H 2013. If markets conditions are favourable, a second line could be added (2015-2016).
Details about how the acquisition will be funded were not released but the funding should be done through own sources
or bank loans. We do not expect a share issue. The investment should not jeopardize the progressive dividend policy of
the company, as confirmed in the 1Q11 conference call.
A new production facility will be an entry point for the company to North Africa, Middle East and Asia markets. We regard
the deal as the right investment decision.
NWR
NWR announced that as at 1 June (4 p.m. CET), the third closing date of the share offer, it received acceptances in
respect of 2,174,475 shares. Total acceptances represent almost 99% of the issued shares. Trading in the new shares
started on 2 June in London and Prague and on 3 June 2011 in Warsaw. As a reminder, the offer is related to NWR's
reincorporation to the UK and subsequent inclusion into the FTSE index. The news is neutral.
NWR has announced that its majority owner BXR Mining will sell up to 16m shares of NWR (about 6.1% stake),
reducing its stake (64.3% in NWR) in order to enhance liquidity in connection with the inclusion of NWR in the FTSE
index. The offer will be non-public and is subject to the price offered.
3. EQUITY MARKET – PRAGUE STOCK EXCHANGE
The announced transaction is neutralizing the positive effect (in terms of higher demand) related to potential
inclusion of the stock in the FTSE index. Please note that NWR expects to be included in the FTSE 250 index during
the next quarterly review (scheduled for 8 June 2011), effective from 17 June. The inclusion is subject to approval by the
FTSE committee.
In addition, the stock could potentially face certain pressure in connection with investors' freeing funds for the IPO
of Polish miner JSW (book-building period: 13-28 June; trading on the WSE will commence on 6 July).
The announced sale does not change our fundamental view of the stock and we therefore maintain our target price.
However, the higher supply is of course felt on the market.
Nevertheless, increasing the free float could lead to potentially higher weighting of NWR in the FTSE 250 index. Having
said that, the potential positive effect (higher demand) of inclusion in the index will be muted at least in the short term and,
moreover, the stock could potentially remain under pressure due to the anticipated IPO of JSW.
Fortuna
Fortuna's shares are going ex-dividend today, 6 June (EUR 0.3 per share). At the present currency rate, this means
about 5.7% gross dividend yield. The dividend payment day is on 24 June.
Penta (majority owner of Fortuna) and E-invest submitted a joint offer for lottery activities of Sazka, which was
officially declared bankrupt last Monday. The offer price is CZK 3.5bn and the companies also offer to pay CZK 300m
annually from lottery earnings to sports clubs. Penta intends to take advantage of the synergy of Sazka and Fortuna to
create a dominant player on the Czech lottery market. There are more companies interested in acquiring Sazka
(Fortuna itself had earlier submitted an independent offer worth CZK 2 – 2.5bn) and negotiations may be expected to be
lengthy. This is positive for Fortuna even if the acquisition fails. In the second half of July, Fortuna is launching its own
lottery and the unresolved problems regarding Sazka would make it much easier for Fortuna to start the lottery and
acquire a market share faster. Penta's strategy will be to seek Sazka's acquisition or at least try to delay the final
resolution of Sazka's situation.
5. EQUITY MARKET – BRATISLAVA STOCK EXCHANGE
Weekly volume
Close w/w (%) 3M (%) y/y(%) 52W Low 52W High
(EUR ths)
VUB 81.0 -0.6 -11.2 15.7 67.0 95.0 7
SES Tlmače 7.0 -50.0 -50.0 -58.8 7.0 17.0 0
OTP 4.00 0.0 81.0 33.3 2.01 4.10 0
Biotika 21.0 0.0 -2.3 130.6 9.1 23.2 5
Slovnaft 50.0 0.0 0.0 -7.5 40.0 58.3 0
BHP 11.2 0.1 1.0 8.2 10.3 11.2 334
TMR 42.0 -0.2 1.4 5.5 39.7 42.5 416
SAX Index 230.34 -2.5 0.8 11.2 204 248.53 762
MARKET COMMENT
After a previous long pause following the 2010 results, SES Tlmače traded at EUR 7, down 50% last week. VÚB's
shares stayed at EUR 81.50 almost all week, eventually
falling to EUR 81 and closing down 0.6%. TMR traded SAX Index
within a narrow range of EUR 42 – 42.28 and closed 255
down about 0.2% at EUR 42. Slovnaft first fell to EUR 250
47.50 before rebounding to EUR 50, i.e. flat w/w. Biotika
closed also flat at EUR 21.01. The only growing stock in 245
the SAX Index was BHP, which finished up 0.1% at EUR
240
11.20.
235
The SAX Index posted a loss of 2.5% to 230.34 points.
Traded volumes reached about EUR 750 thousand, with 230
half of the volumes traded in TMR. Of stocks not included
in the SAX Index, Zentiva is worth mentioning. The shares 225
were traded within EUR 131.03 – 131.27 and they gained
220
about 64% YTD. 6/05 13/05 20/05 27/05 3/06
EUR TMR - Tatry Mountain Resorts EUR BHP - Best Hotel Properties
11.24
42.4
42.2
11.20
42.0
41.8 11.16
41.6
11.12
41.4
41.2 11.08
6/05 13/05 20/05 27/05 3/06 6/05 13/05 20/05 27/05 3/06
6. ECONOMY
Industrial output – April
Growth in industrial output slowed down to 4.7% y/y (vs. 12.9% on average in 1Q), falling short of expectations
(8.0%). Seasonally adjusted production increased by 0.3% m/m. Although the year-on-year comparison was negatively
impacted by a calendar effect (-1 working day), the adjusted result (7.7%) is still worse than expected and indicates an
ongoing slow-down, which started in February. The data fit into the weaker results of the German industry (in particular a
decline in orders). Apart from the overall result, detailed figures do not reveal any major surprises.
Exports remain the decisive factor; total sales grew by 6.5% y/y, of which export sales grew by 13% y/y and domestic
sales by less than 1%. Industrial production growth could continue, albeit at a slower pace, which is indicated by a solid
increase in new orders (9%, of which new orders from abroad: 9%). Main growth drivers include car manufacturing (17%),
machinery (10%) and metallurgy (7%). This year we expect an increase of 7%.
Trade balance – April
Trade balance in April ended with a surplus of CZK 12.6bn (CZK 14.1bn in April 2010), in line with our expectations
(CZK 12bn) but slightly below market consensus (CZK 15bn). Exports continued to grow at a strong pace (15% y/y) in
traditional categories. Car and machinery exports rose by 20%. Imports continued to grow too (17%), supported by a
recovery in investment demand along with growing prices of commodities, crude oil in particular. The value of imported
crude oil, gas and fuels rose by 25% but the volume of crude oil and gas fell by 13% and 2%, respectively. The trade
deficit in energies increased by CZK 3.2bn, erasing a part of the 6.5bn higher surplus from trade in machinery and cars.
According to the national methodology of balance of payments, foreign trade posted a surplus of CZK 0.9bn.
The results passed without any reaction on the part of the FX market and the koruna stayed at 24.32 per euro.
Indicators Last Figure Period 2009 2010 2011e
GDP (real) %, y/y (real) 2.9 '4Q/10 -4.0 2.2 2.0
Industrial output %, y/y (real) 16.9 '02/11 -13.4 10.5 7.5
CPI %, y/y 1.8 '02/11 1.0 1.5 2.2
Trade balance bn CZK 1.0 '12/10 151.7 124.5 105.2
Current account % of GDP -1.0 '2009 -1.0 -3.3 -1.8
Unemployment % 9.7 '01/11 8.1 9.0 8.1
7. FOREX
CZK/EUR USD Koruna EUR
16.0 23.0
The koruna stagnated against the euro all week around
24.50 but firmed to 24.33 at the end of the week. The
firming was triggered by the weakening of the dollar against 16.4
23.5
the euro, which was subsequently reflected in other regional
currencies. 24.0
We still expect rather calm and stable trading, and the koruna 16.8
could firm further in the short term (24.2). By the end of the
24.5
summer the koruna could get stabilized around 24.2-24.6. The 17.2
long-term outlook remains unchanged and we expect to see
USD
the Czech currency firm to 23.8. EUR
25.0
17.6
6/05 13/05 20/05 27/05 3/06
CZK/USD
The koruna was firming against the dollar all week,
moving from 17.20 to a month high of CZK 16.60/USD. The firming accelerated toward the end of the week, when the
dollar weakened against the euro and the koruna firmed against the euro.
Higher volatility will probably continue and the dollar could continue weakening (16.50?) in the short term. In the long
term (months) rather than a clear trend we expect to see higher volatility within CZK 16-20 per USD.
USD/EUR
The euro was steadily firming against the dollar. After moving from USD 1.43/EUR to 1.45/EUR, it jumped to a month
high of 1.463, as another loan by the EU to Greece is becoming a possibility. Moreover, US macroeconomic data,
especially the unemployment report, were weak.
The dollar got under a strong selling pressure and besides a technical correction there are not many events that would
support the dollar in the short term. The ECB meets on Thursday. Interest rates are expected to be kept unchanged but
at the same time the central bank is expected to indicate their raise in July. If expectations are not met, the euro could
significantly weaken.
Exchange Rates Close w/w 3M YTD y/y 52W Forward Forward
(%) (%) (%) (%) Low High 1M 6M
CZK/EUR 24.33 0.8 0.2 3.3 6.4 24.0 26.0 24.3 24.3
CZK/USD 16.63 3.0 6.5 13.8 28.1 16.3 21.8 16.6 16.7
CZK/GBP 27.30 3.6 5.4 6.9 14.0 26.9 31.9 27.3 27.3
USD/EUR 1.464 -2.2 -5.9 -9.2 -16.9 1.19 1.48 1.46 1.46
