OTP Bank Nyrt and Mol Nyrt, Hungary's two largest companies, may say Q2 earnings increased as eastern Europe's economic expansion stoked demand for financial services and energy. OTP, the region's most profitable lender, might report Aug. 14 that profit rose 15%, according to the median estimate of six analysts surveyed by Bloomberg News. Budapest-based Mol, the region's biggest oil company by market value, may say profit added 2.3%, a survey showed. “They know how to run expanding and growing companies,” said Thomas Farthofer, who manages $300 million of east European stocks at Bank Fuer Arbeit und Wirtschaft AG in Vienna. “Profits from operations abroad increased.” Hungarian companies including OTP, Mol, Magyar Telekom Nyrt and drugmaker Richter Gedeon Nyrt, which make up 89% of the weighting of Hungary's BUX Index are targeting acquisitions in neighboring former Communist countries, where growth outstrips Hungary's, and are boosting exports. Mol and OTP have spent more than a combined $2.5 billion to expand in the region, making investments in countries including Slovakia, Bulgaria and Russia since 1999. Hungary's 4.6% Q2 growth compares with Slovakia's 6.3%, 5.6% in Bulgaria and 5.5% in Russia. “All the markets in which they are expanding have far higher growth than Hungary,” said Ralph Luther, who manages $26 million in Hungarian stocks at Berenberg Bank in Hamburg. OTP's acquisitions “are beginning to pay off.” The companies' expansion strategy has attracted investors. The BUX index has risen 6.2% this year, while the Euro Stoxx 50 Index has gained 2.3%. The BUX rallied 41% last year after a 57% jump in 2004. OTP may say Q1 profit rose to Ft 43.95 billion from Ft 38.1 billion, according to the analyst survey. Chairman Sándor Csányi has spent more than $1.3 billion buying units in seven countries and is looking to buy more lenders, including Romania's biggest savings banks. Mol will probably say Q2 profit rose to Ft 63.1 billion on increasing crude oil prices and widening refining margins, as well as faster growth on its markets outside Hungary. The company bought refineries in Slovakia and Croatia and has gas stations in Romania, Serbia, and the Czech Republic, where economies and fuel use grow faster than in Hungary. Chairman Zsolt Hernádi is seeking to expand into Russia, Croatia, Serbia and Pakistan. The acquisitions are “needed to maintain growth momentum,” Tamás Pletser, an analyst with Erste Bank in Budapest, said in a note to clients. Magyar Telekom, the No. 2 phone company in eastern Europe, may say on Aug. 10 Q2 profit fell because of costs to absorb businesses it bought in Bulgaria and Hungary. The Budapest-based company, owned by Deutsche Telekom AG, may say net income declined 18% to Ft 19.1 billion, according to the median estimate of six analysts surveyed. Sales probably rose 2.6% to Ft 160.5 billion. The company bought majority stakes in phone operators in Bulgaria, Montenegro and Macedonia as competitors like Telenor ASA and Vodafone Group Plc cut into its domestic market share. The integration of assets, start of new services and the merger of Magyar Telekom's mobile unit into the company “will weigh on costs,” Pamela Antay, an analyst at KBC Securities, said in a note to investors. Magyar Telekom is also buying companies outside its main business to counter slowing growth in fixed-line and mobile telephones as the markets near saturation. It has acquired technology services, software and networking units in Hungary. Richter, the biggest drugmaker by market value in eastern Europe, said on July 27 that Q2 profit jumped a higher-than-expected 48% to a record as exports surged. (Bloomberg)
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