CEZ Chief Eyes Vattenfall to Enel Assets After Nuclear Flop

Apr 29, 2014 12:35 pm ET

(Updates with analyst comment in sixth paragraph.)

April 29 (Bloomberg) -- CEZ AS’s decision to drop a $15 billion nuclear project in the Czech Republic opens up the possibility of acquisitions in neighboring Germany, Poland and Slovakia, the power producer’s chief executive officer said.

The largest utility in the European Union’s ex-communist east may be interested in buying some assets from Vattenfall AB in Germany, CEZ chief Daniel Benes said yesterday in an interview in Prague. There are also attractive opportunities in Poland and especially in Slovakia, where the national utility Slovenske Elektrarne AS is owned by Enel SpA, he said.

“The biggest failure in CEZ’s history was that we didn’t buy Slovenske Elektrarne,” Benes said in his Prague office. “CEZ would be in a completely different position today had it succeeded back then. So if that asset is up for sale, we will gladly enter into negotiations about it.”

CEZ called off the tender for two new reactors at its Temelin plant on April 10 after the Czech government refused to provide any guarantees to ensure the project’s profitability. The decline of European power prices to a record low has made nuclear construction impossible without state support and may prompt CEZ to review its investment strategy, Benes said.

Enel’s assets in Slovakia aren’t up for sale, a spokeswoman said in an e-mailed statement, without giving her name, in line with the company’s policy.

State Support

“Acquisitions could moderate a decline in revenues and profits, but it is too early to say how much as we don’t know which assets this would be,” Josef Nemy, an analyst at Komercni Banka AS in Prague, said by e-mail today. “Right now, investors would rather appreciate an increased dividend payout.”

Finance Minister Andrej Babis said on March 24 he will ask CEZ, of which the government owns 69 percent, to pay its entire 2013 profit in dividends, triggering the biggest intraday gain for the stock since July 2009. The board of directors instead proposed a month later to distribute 40 koruna per share, or 61 percent of last year’s net income.

Shareholders will vote on the dividend proposal on June 27.

CEZ’s decision on Temelin doesn’t mean the end of nuclear energy in the Czech Republic, whose two atomic plants generate more than 40 percent of the country’s electricity output. The company has taken a “time-out” and the government will decide on the future of the country’s nuclear sector by the end of this year, Benes said.

‘Customer Base’

The best solution would be to build one reactor at a time rather than two at once, according to the CEO. It’s up to the government to decide whether it should form a separate company to handle the construction and financing of future nuclear projects, he said.

CEZ doesn’t plan to buy any generation assets in its home market and will instead focus on developing smaller co- generation units and activities including gas distribution and mobile-phone services to mitigate the falling revenue from electricity production, according to Benes.

“We want to significantly focus on our customer base and create a larger portion of our profits outside the core business of electricity generation,” he said. “The other source of growth is through acquisitions.”

While the utility supports targets for reduction of carbon- dioxide emissions, it’s firmly opposed to EU targets for renewable energy sources, he said.

Share Discount

Even after the cancellation of the Temelin tender helped spur a rally in CEZ shares this year, the stock trades at a discount to peers in western Europe. Its price stood at 11.2 times estimated 12-month earnings yesterday, compared with 14.1 times for the Stoxx 600 Utilities Index, which CEZ joined on Sept. 23, according to data compiled by Bloomberg.

CEZ rose 0.3 percent today to 592 koruna, extending its 2014 gains to 15 percent and valuing the company at 318 billion koruna ($16 billion).

“The perception of CEZ has for a long time been affected by the planned nuclear tender, which wasn’t good news for investors, who don’t look at what’s going to happen in 2030,” Benes said. “We’ll see how quickly they’ll start seeing us as a western European company.”