CEZ Electro Q3’18 profitability improves on growing gross margin (POSITIVE)

Q3’18 revenue added 1.9% YoY to BGN 101.9m while the gross margin improved to 11.8% from 8.2% in the comparable period, significantly higher than the regulated 2.2% margin. Total operating cost (excl. electricity cost) surged 61.4% YoY on the 3.5-fold increase of compensation cost. Recall that last year the EGM did not approve a number of related parties transactions which forced the company to hire new personnel for activities previously outsourced to companies from CEZ Group. EBITDA and net income grew 18.6% and 17.2% YoY, respectively. 9m’18 revenue declined 7.7% YoY while gross profit was up 3.3% with slight margin improvement to 6.8%. EBITDA, however, was down 76% due to the one-off BGN 31.8m gain from a court case between NEC and CEZ Electro booked in the comparable period. As a result, net profit also declined by 76.5% YoY to BGN 9.1m and EPS of BGN 1 823. On the balance sheet non-cash working capital remained nearly flat on YtD basis while cash added another BGN 6.5m to BGN 125.5m (cash per share of BGN 25 103.80).