Czech Defense Giant CSG Targets Dual IPO with Ambitious €30 Billion Valuation, Raising Analyst Questions
The Czech defense and industrial conglomerate Czechoslovak Group (CSG), owned by billionaire Michal Strnad, is reportedly planning a major dual initial public offering (IPO) on both the Amsterdam and Prague stock exchanges as early as January next year. If realized, this could mark Europe's first significant IPO of 2025. However, the group's reported target valuation of over €30 billion has already sparked debate among market analysts, who suggest the ambitious figure may be considerably overstretched.
According to sources cited by Bloomberg, CSG aims to raise over €3 billion from the offering by listing just 10% of its shares. This tactic, as outlined by Tomáš Pfeiler, an analyst at Cyrrus, is a strategic move often designed to maximize the price of offered shares. "The company offers only a small portion of its shares on the market. The result is that a large number of investors compete for a limited number of shares, and their price then quickly rises. It's essentially a way to artificially boost the value of the shares," Pfeiler explains. He draws parallels to a Vietnamese automaker that saw its share price surge dramatically after listing only about one percent of its stock.
Valuation Concerns and Market Comparisons
Despite the potential for an initial price surge, Pfeiler cautions that such a tactic carries inherent risks. "Investors may realize that the price of such shares does not reflect the company's true value, but only a temporary excess of demand over supply," he warns. "The share price in these cases then tends to correct, i.e., fall." Jindřich Litner from Patria Finance concurs, suggesting CSG likely aims to list only a smaller portion of shares given its substantial overall valuation. He notes that an amount around €3 billion appears "market-absorbable" and would provide ample development capital without "overloading demand for the new title."
CSG's reported target valuation of over €30 billion (approximately 730 billion CZK) represents a dramatic increase from its €4 billion (100 billion CZK) valuation just last year, when it was ranked as the fifth most valuable Czech company. This ambitious plan implies a more than seven-fold increase in value in just two years.
However, a closer examination using common industry valuation metrics, such as the enterprise value-to-EBITDA (EV/EBITDA) multiple, raises questions about the feasibility of this target. If CSG were to achieve a €30 billion valuation based on its last year's gross operating profit (EBITDA) of €1.1 billion, its implied EV/EBITDA multiple would be around 27. This figure is significantly higher than many peers. Germany's Rheinmetall, Europe's largest defense contractor with a vast product portfolio spanning from ammunition to tanks, commands a multiple of 47. However, for defense firms closer in size to CSG, multiples are considerably lower: British BAE Systems, still significantly larger than CSG, has a multiple of 17, while Italy's Leonardo trades at 14.7.
If CSG's €1.1 billion EBITDA from last year were to be valued using a similar multiple to Italy's Leonardo, its estimated value would be around 400 billion CZK (approximately €16.4 billion). While this still represents a robust four-fold increase over its 2023 valuation, it is substantially less than the €30 billion CSG reportedly hopes to achieve. Andrej Čírtek, a spokesperson for CSG, declined to comment on the potential IPO plans.
Strategic Rationale for a Dual Listing
The decision to pursue a dual listing, particularly on a major Western European exchange like Amsterdam, is a shrewd strategic move, according to Pavel Ryska, an analyst at J&T Bank. "It is in Western Europe where the biggest renaissance in defense spending is occurring, along with a re-evaluation of the defense industry from the perspective of investors and funds," Ryska explains, highlighting the current favorable climate for defense stocks.
A simultaneous listing in Prague is also considered logical. "CSG and its subsidiaries like Tatra are well-known here, the Czech investing public generally has a favorable attitude towards defense companies, and there is still hunger among investors for stock opportunities on the domestic exchange," Ryska adds. He predicts "significant interest" from Czech investors if the valuation is deemed appropriate.
CSG's established presence in the Czech capital market, having placed over 10 billion CZK in bonds this year, further solidifies the rationale for a Prague listing. Jindřich Litner of Patria Finance elaborates: "Maintaining a presence on the Prague stock exchange strengthens the relationship with the domestic investor base, especially with funds and retail investors who already know CSG from the bond market." He also suggests it "helps solidify the group's reputation as a significant Czech issuer and could contribute to the inclusion of its shares in the PX index, thereby increasing liquidity and visibility. CSG would also offer the Czech investment community another alternative to Colt CZ Group shares."
Petr Koblic, CEO of the Prague Stock Exchange, expressed enthusiasm for new listings. "Whether it's a primary public offering or a dual listing, Czech investors have significant capital and a desire to invest this capital in the domestic market," Koblic stated, welcoming the potential expansion of the exchange's offerings.
As CSG prepares for what could be a landmark listing, the market will keenly watch whether its ambitious valuation can withstand investor scrutiny and if it can successfully capitalize on the renewed interest in defense stocks.
