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100 most valuable Czech companies

SZ byznys, November 1, 2023                            Link to the original article

Seznam Zprávy in cooperation with Deloitte ČR under the auspices of the Prime Minister of the Czech Republic announces the ranking of the 100 most valuable Czech companies.

Link to the chart


Which company is Czech?

One hundred companies were shortlisted, but at the beginning of the count there were once as many. From Deloitte's databases, competitive rankings and, above all, our own knowledge of domestic business, we drew up a broader sample of companies where the main entry criterion was the predominance of domestic capital.

The fact that more and more of them are expanding into foreign markets by taking over local companies is a testament to the ambitions and abilities of Czech businessmen and women. And the fact that more and more smaller and medium-sized companies are listing their shares on the Prague Stock Exchange.

We ruled out foreign-controlled companies at the outset, even though their role in the local economy is traditionally high. Many well-known brands that Czechs often associate their identity with (e.g. Škoda Auto or Plzeňský Prazdroj) were left aside for a future project of this kind.

The second condition for participation was that the company should have its roots and base of operations in the Czech Republic. Many have already made a name for themselves abroad and it happens that their foreign footprint is bigger than the domestic one. However, if the centre of operations remains at home, the companies rightfully belong among the Czech elite and are in the ranking.

How to measure investment groups?

Our purpose is not to track assets by owners. We have found it more interesting to rank "real" companies. Therefore, instead of investment groups such as PPF, KKCG, Penta, Rockaway or Miton, which manage a diverse range of businesses, you will find individual components of their portfolios in the ranking.

The line where an industry-profiled firm ends and a disparate conglomerate begins can be drawn in different ways, and some cases are borderline. While the EPH, Agrofert, Sev.en and MTX groups may sometimes look like this, we included these four in the rankings because of their narrower focus on one or more related industries. Consolidated accounting also played an important role, and the fact that cutting them into components only led to confusion and a move away from a true description of how these firms actually operate.

How are companies valued?

The value of the winning CEZ is determined as simply as that of Apple. The winning company has shares on the stock exchange and nothing better than multiplying their number by the current price can be invented. For the others, calculating the value is a more complicated but solvable task, which is where most of our work was based.

One method for determining value is to simulate a situation where the company would have to close down overnight. At that point, the assets would be sold off, debts paid off and the remainder paid into the hands of the founders. Such a procedure may make intuitive sense to the layman, but in practice this is only done for failing businesses. This is de facto liquidation, which makes no sense in well-functioning organisms. The main reason for doing business would be lost.

The value of successful companies is based on the profits they are able to generate and the returns they are able to deliver to their owners repeatedly - every year. That is what the purchase price is based on. The new owner purchases the company as a de facto money machine and prepays for the future flow of profits with his investment.

The key is deciding how many multiples of profit it is appropriate to pay. Experts like Deloitte have extensive databases for this purpose. They map similar transactions in the industry and continuously monitor the profit-to-share price ratios of companies traded on exchanges. Comparing market earnings multiples was the main method for our ranking. The exceptions were banks, where comparisons by earnings to equity ratio are used to estimate value, and property developers, where we measured net asset value in line with industry practice.

For all calculated values it is important to emphasise that this is only an indicative estimate and that the chosen procedures have their limits. Practice shows that it is possible to sell even a loss-making company, but our valuation methods are more conservative in this respect, so only companies that are profitable have been shortlisted. We have used the latest available statements in our calculations. However, the first year is not the last - we will continuously evaluate the new data and update the top 100 regularly.