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CEZ Group Investment Research and Valuation Analysis

This research report provides a detailed financial analysis, valuation, and investment recommendation for CEZ Group, a major electricity producer in the Czech Republic, with insights on peer group comparison, risks, and market trends. The report includes assumptions, company comparisons, industry averages, and sensitivity analysis.

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CEZ Group Investment Research and Valuation Analysis

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  1. CEZ GROUP CFA INVESTMENT RESEARCH CHALLENGE MARCH 3, 2011 MADRID 1 INVESTMENT RECOMMENDATION TO DECEMBER 21, 2010

  2. CEZ GROUP CZECH 2 2 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION

  3. VALUATION ASSUMPTIONS CZECH 3 3 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION

  4. CEZ AS INTERNATIONAL UTILITY CZECH MAJOR ELECTRICITY PRODUCER IN THE CZECH REPUBIC 74% of market 70% MoF 32.707 emp ONE OF TEN BIGGEST EUROPEAN POWER UTILITIES 65,3 TWh 17 countries 60 plants PRODUCTION BASED ON LIGNITE AND NUCLEAR POWER 44% OF REVENUES IN POWER PRODUCTION 39% distribution 45% lignite 4% mining 42% nuclear 14% other 13% other Source: Company data, Czech team research 4 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 4

  5. COMPANY COMPARISON CZECH 43 Industry average 5,6% Industry average 7,6x 6x Source: Czech team estimates, Reuters Data to 21/12/2010 5 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 5

  6. FINANCIAL ANALYSIS CZECH Source: Company data, Czech team estimates 6 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 6

  7. FINANCIAL ANALYSIS CZECH Source: Company data, Czech team estimates 7 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 7

  8. FINANCIAL ANALYSIS CZECH Source: Company data, Czech team estimates 8 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 8

  9. FINANCIAL ANALYSIS CZECH Source: Company data, Czech team estimates 9 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 9

  10. FINANCIAL ANALYSIS CZECH Source: Company data, Czech team estimates 10 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 10

  11. FINANCIAL ANALYSIS CZECH Source: Reuters, Bloomberg, Company data, Czech team estimates 11 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 11

  12. VALUATION BASE TEAM E CZECH Source: Company data, Czech team estimates 12 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 12

  13. VALUATION TEAM E TEAM E Ratio betweenphasesof DCF equity Ratio betweenphasesof DCF equity Source: Company data, Czech team estimates 13 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 13

  14. INVESTMENT RISKS TEAM E CZECH 14 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 14

  15. POWER PRICES CZECH Source: EEX, PXE, Czech teamestimates 15 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 15

  16. ACTUAL ISSUES CZECH Development of subsidiary, taxed and bought emission allowances (mil. CZK) Estimatedpricesofemissionallowances (EUR) Source: Czech teamestimates 16 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 16

  17. SENSITIVITY ANALYSIS CZECH Source: Czech teamestimates 17 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 17

  18. SENSITIVITY ANALYSIS CZECH Source: Czech teamestimates 18 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 18

  19. SUMMARY TEAM E CZECH TICKER NYSE EURONEXT: CEZ HOLD TARGET PRICE: 807 CZK 19 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 19

  20. SUMMARY TEAM E CZECH TICKER NYSE EURONEXT: CEZ HOLD TARGET PRICE: 807 CZK Recommendation to 21 December 2010 Source: Czech teamestimates 20 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 20

  21. RECOMMENDATION TO DECEMBER 21, 2010 TEAM E CZECH TICKER NYSE EURONEXT: CEZ HOLD TARGET PRICE: 807 CZK 21 ASSUMPTIONS CEZ GROUP PEER GROUP COMPARISON FINANCIAL ANALYSIS VALUATION INVESTMENT RISKS RECOMMENDATION 21

  22. APPENDIX CZECH

  23. APPENDIX - HIGHLIGHTS CZECH Source: Czech teamestimates, Company data

  24. APPENDIX – INVESTMENT SUMMARY CZECH Source: Czech teamestimates, Company data, Eurostoxx50

  25. APPENDIX – STATEMENT OF CASH FLOW CZECH Statementof Cash Flows (in millions CZK) Source: Czech teamestimates, Company data

  26. APPENDIX – BALANCE SHEET (ASSETS) CZECH Balance Sheet (in millions CZK) Source: Czech teamestimates, Company data

  27. APPENDIX – BALANCE SHEET (LIABILITIES) CZECH Balance Sheet (in millions CZK) Source: Czech teamestimates, Company data

  28. APPENDIX – INCOME STATEMENT CZECH Incomestatement (in millions CZK) Source: Czech teamestimates, Company data

  29. APPENDIX – FREE CASH FLOW CZECH Free cashflow (in millions CZK) Source: Czech teamestimates, Company data

  30. APPENDIX – VALUATION CZECH DCF method Counted growth in the second phase was 1,49% based on planned growth of sales Source: Czech teamestimates, Company data

  31. APPENDIX CZECH Cross-borderpowerflows (2009) DE - 51,14€/MWh PL – 50,25€/MWh SK – 49,15€/MWh HU - 51,05€/MWh Source: ČEPS

  32. APPENDIX CZECH Source: Comapny data, Czech teamestimates

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