The event of the last week on the Czech capital market was the general meeting of ČEZ. There was a certain clash on the axis of the majority owner – the state represented by the Ministry of Finance, management and small shareholders, often angry, for whom the investor Michal Šnobr spoke mainly.
The latter, as the most visible of the minority shareholders, publicly expressed considerable disgust with the course of the general meeting. And above all from the behavior of management and the state towards minority shareholders.
The main problem is that the management does not feel much need to talk to the minority shareholders, because for years it is enough to get along with the politicians. Not to mention, the state holds a 69.78 percent stake in the company.
Dividend policy decision
The main topic of the general meeting was the dividend payment. This was approved in the amount of 48 crowns per share. At the time of the general meeting, the share price was at the level of 1,107 crowns, but a few days before the general meeting, it dropped almost to the level of 1,000 crowns.
GRAPH: Development of the CEZ share price
For the month of June 2022, in CZK.
Source: InFront
The amount of the dividend at ČEZ is a purely political decision. The state wants money from him, because for him they represent a non-negligible income from the state budget, which he has become accustomed to.
On the other hand, ČEZ does not need to distribute profits, but above all to reinvest in its further development. On the one hand, the company is helped by rising energy prices that it can pass on to its customers.
On the other hand, his costs are also increasing. Whether it is the cost of purchased energy that it sells, but above all it is the emission allowances that it has to buy for its coal-fired power plants.
In recent years, ČEZ has paid around 58 billion crowns in dividends. And that is a lot considering the size of the equity capital of 168 billion crowns. The company had over 1,000 billion crowns in debt, and let’s face it, it will have to take on more debt over time in order to be able to maintain its business in the long term.
GRAPH: Development of dividends paid by the ČEZ Group
From 2004 to the present, in CZK.
Source: CEZ
Independence from Russia
Coal-fired power plants will need to be gradually replaced, they must invest in the development of their nuclear energy industry and get rid of their dependence on Russian companies.
At the same time, the Russian footprint in ČEZ is very significant. Škoda JS is a partner in ÚJV Řež, which Martin Roman sold to some kind of Gazprombank funds. The company itself is on OFAC’s sanctions lists.
The same Škoda JS is an important supplier of work for “Czech” nuclear power plants, although ČEZ is suing it for billions due to the damage that this company’s activities should have caused it. And then here we have the supplier of Russian nuclear fuel, the TVEL company belonging to Rosatom.
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Friendship with politicians
Management is a frog in a spring that tries to be on a friendly level with top politicians at all times. This company practically does not belong to anyone, so everyone does what they want there.
CEZ is anything but an efficient corporation that someone would manage systematically. And the years of management under the leadership of Martin Roman, who primarily ensured that business with ČEZ was done by those who were supposed to do it, are still written in the group.
Especially if Daniel Beneš basically only represents the continuation of this era. Although the energy industry has good times ahead of it in the coming years, in the case of ČEZ, being optimistic is rather a sign of naivety.
Stock price stability
During the general meeting, the supervisory board and the company’s audit committee were also changed. Roman Binder, Radim Jirout, Jiří Kadrnka, Vít Doležálek and Eva Hanáková became new members of the supervisory board. The chairman of the supervisory board is Radim Jirout. Petr Šobotník is a new member of the audit committee, while Otakar Hora remains the head of the audit committee.
However, minority shareholders such as Šnobr fundamentally do not like the fact that the supervisory board does not confront CEZ management with questions regarding its decisions.
Even Prime Minister Petr Fiala’s statements have not contributed much to the stability of ČEZ share prices lately. He talks about the fact that energy companies should participate in solidarity with citizens due to the increase in energy prices.
There are also voices about a sectoral tax or other forms of support that would lead to the mitigation of the impact of the development of energy prices on citizens.
Shareholders will be amazed
ČEZ is currently trading at roughly 22 times its earnings, 3.55 times the value of equity and with a dividend yield of around 4.8 percent. In practically all indicators, it is significantly more expensive than the average values of the industry in which it operates.
There is certainly a positive outlook for economic results for the coming months and probably even the next few years, but CEZ will need to be fundamentally transformed with new investments in its infrastructure. And so the gradual draining of equity through dividends can be quite a problem.
A few more years of such policies and maybe all the shareholders will wonder a lot. For us, CEZ is certainly not a stock that a Czech investor should have in his portfolio. A non-transparent, with completely insane management, an under-invested company, which in its entire focus is a very regressive cash cow not only for its shareholder.
Article authored by him Ondřej Zárubaoriginally released on the server Finsider.cz.
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