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CSG benefits from Europe's rearmament, Ukraine sales

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CSG owned by 33-year Czech entrepreneur Michal Strnad

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Major player in large and small-calibre ammunition

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Source says JP Morgan working for CSG

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By Jan Lopatka

PRAGUE, Sept 2 (Reuters) - Fast-growing Czech-based

defence company Czechoslovak Group (CSG) is considering an

initial public offering of its shares, the company said on

Tuesday, a deal that could value the group at tens of billions

of euros based on its financial performance.

CSG, owned by a 33-year old entrepreneur Michal Strnad, has

seen rapid growth amid soaring demand for ammunition and

military equipment since Russia's invasion of Ukraine in 2022

and a public offering would be a major transaction amid soaring

valuations of the defence sector.

The company is among top European makers of artillery

ammunition for NATO countries and Ukraine and among leading

global makers of small-calibre ammunition for handguns after its

$2.2 billion acquisition of U.S.-based Kinetic Group last year.

CSG has also rapidly expanded its division producing and

modernising heavy military equipment including artillery,

armoured vehicles and trucks.

"The Group is in the early stages of evaluating potential

strategic alternatives to support its continued growth

strategy," CSG said in a half-year report on Tuesday.

"These alternatives include further possible capital markets

transactions, including potentially, in due course, an IPO on a

regulated market."

CSG said no decisions had been made yet.

A person familiar with the matter said JP Morgan was among

banks working on the potential offer and that no transaction was

likely this year. JP Morgan declined to comment.

CSG, which has around 14,000 employees and over 100

subsidiaries, competes with Germany's Rheinmetall,

KNDS or General Dynamics ( GD ) in the large-calibre ammunition

business, its largest segment.

The group reported revenue of 2.8 billion euros ($3.3

billion) in the first half of this year, core profit before

interest, tax, depreciation and amortisation of 0.8 billion

euros, and net debt of just under 3 billion euros.

Based on its financial performance and its rivals' market

valuations, CSG could have enterprise value, or market

capitalisation plus net debt, of 23 to 40 billion euros.

J&T Banka analyst Pavel Ryska said CSG was benefiting from

soaring European defence sector stock valuations.

"CSG made an early decision to increase production and go

for acquisitions abroad, which is now yielding both organic and

inorganic growth," and strong margins, Ryska said.

CSG reported an order backlog of 14 billion euros, and a

14-billion euro pipeline of projects in various stages of

negotiation.

Apart from Kinetic, it acquired IFF's

nitrocellulose plant in Germany last year and formed a joint

venture with the state-owned HDS company in Greece for

ammunition production.

In the United States, it produces ammunition under brands

such as Federal or Remington.

CSG issued $1 billion and 1 billion euros in bonds in June

to restructure its debt at lower interest.

($1 = 0.8542 euros)