Analysts: Worsening outlook for Czech utility ČEZ will have no significant impact on its shares

The worsening outlook for the credit rating of Czech energy company ČEZ will have no significant impact on the price of its shares and bonds. Analysts contacted by the Czech News Agency (ČTK) agreed on this. International rating agency Moody’s downgraded its outlook for ČEZ to negative from stable on Tuesday. It left the rating itself unchanged at Baa1. After 12:00, ČEZ shares on the stock exchange were up 1.6 percent at 846 Kč per share.

A worsening outlook indicates that Moody’s could downgrade ČEZ’s rating in the future. Moody’s changed its outlook a few days after the announcement that ČEZ would pay 21.4 billion Kč to acquire a 55.2 percent stake in Czech gas company GasNet. The agency said the takeover made strategic sense because it would allow ČEZ to strengthen its position in the Czech energy market, but the acquisition comes with a substantial debt burden. GasNet owes around 55 billion Kč.

Cyrrus analyst Tomáš Pfeiler told ČTK that ČEZ bonds had barely reacted to the news of the outlook downgrade. An outlook downgrade is not a rating downgrade, so the significance of the statement is not substantial, he said. Moreover, Moody’s rating remains safely within investment grade, meaning ČEZ is considered among the safest bonds. „The shares are not reacting either; this is not news that moves the share price,“ he added.

According to Radim Dohnal, an analyst at Capitalinked.com, the deterioration in ČEZ’s rating outlook just days after the announcement of a relatively large acquisition of a debt-laden company indicates how sensitive rating agencies are to debt burdens and their future trajectory.

Wood & Company broker Vladimír Vávra views Moody’s downgrade of ČEZ’s rating outlook neutrally. Even after taking on GasNet’s debt, ČEZ’s debt will remain well below the average for comparable energy companies. He therefore does not expect the anticipated increase in debt to cause any significant rise in ČEZ’s debt financing costs or to worsen its access to financing.

Moody’s downgraded outlook reflects the risk of lower future revenue from electricity sales due to falling prices on the markets. „Moreover, any increase in debt is a potential risk, especially at a time of high interest rates. This is true even though the acquisition makes strategic sense,“ said Tomáš Cverna, an analyst at XTB.

A credit rating is an important guide for investors, indicating the likelihood that loans will be repaid in full and on time. It has a significant influence on lenders’ willingness to lend to a company or another entity, as well as on the terms of the loan, such as the interest rate. The higher the rating, the more favourably the borrower is viewed by lenders and the more likely it is to secure cheaper loans.

ČEZ announced last week that its net profit fell 63 percent year on year to 29.6 billion Kč last year. Analysts said the decline was sharper than the market had expected. This was mainly due to the greater impact of extraordinary taxes and levies, on which the company paid around 40 billion Kč. ČEZ is one of the largest energy companies in Czechia. The state is its majority shareholder, holding around 70 percent of the shares through the Ministry of Finance.

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