Hungary's top companies may say profit rose on foreign sales

Mol Nyrt, the nation's No. 1 oil company, might say November 11 profit climbed 26%, the median of five analysts surveyed by Bloomberg shows. OTP Bank Nyrt, the largest lender, may on November 14 say earnings rose, Erste Bank AG estimates. Gedeon Richter Nyrt, the biggest eastern European drugmaker, reports next week and might post a 4% profit increase. Higher taxes and lower state spending, to narrow the European Union's widest budget deficit, will slow economic growth, the government estimates. Mol, OTP and Richter, which make up 75% of the benchmark BUX Index, have expanded in neighboring states to make up for waning demand in Hungary. “The pace of earnings growth is clearly peaking,” said Dimitri Chatzoudis, manager of about €783 million ($1 billion) in emerging markets at ABN Amro in Amsterdam. “The market is not something we're positive on because of the imbalances in the economy.” The measures to fight the deficit have incensed some citizens and led to demands for Prime Minister Ferenc Gyurcsány to quit. He admitted in September to lying about the economy to win a second term. Demonstrations degenerated into riots again on the October 23 anniversary of Hungary's 1956 uprising. “There's a lot of uncertainty,” said Glen Finegan, who helps manage €4.7 billion ($6 billion) at First State Investments in Edinburgh. “We pick the best 80 or 90 companies in emerging markets and currently none of them are in Hungary.” By comparison with the Hungarian government estimate for 4.1% economic growth this year, in Poland, eastern Europe's biggest economy, gross domestic product is predicted by the government to expand 5.2% in 2006.

Profit at Budapest-based Mol will rise to Ft 71.7 billion ($350 million), the median of five forecasts shows. The oil company gained from “stronger upstream and still-strong petrochemicals, rather than the refining growth,” UBS AG analysts wrote in a report. Mol began moving beyond Hungary's borders when it became the majority owner of Slovakia's only refiner in 2003. It since has acquired a stake in Croatia's INA Industrija Nafte d.d. and built up a network of gasoline stations in Romania. OTP, also based in Budapest, has spent more than €1.7 billion ($2.2 billion) in the past five years buying 10 banks from Bulgaria to Russia. In Hungary, competition from rivals such as Raiffeisen International AG and a drop in government mortgage subsidies have hurt its dominance. Net income at OTP probably increased to Ft 46.1 billion from Ft 40.9 billion a year earlier, according to an estimate by Erste Bank. The growth rate probably slowed from the Q2, when earnings gained 23%. Richter may say profit increased to Ft 11.4 billion from Ft 11 billion a year earlier, according to the median estimate of five analysts polled by Bloomberg. Richter spokeswoman Zsuzsa Beke said the company would report earnings in the first half of this week. Profit may be helped by increased sales in Russia, where increased oil revenue allows the government to spend more money on health care, said Bram Buring, an analyst at Wood & Co. Péter Fazakas, an analyst at Buda-Cash Brokerház in Budapest, said Richter's profit may decline on lower financial income. Richter gained in recent quarters from weakness in the forint, which has made its exports more lucrative. Magyar Telekom Nyrt, Hungary's former phone monopoly, will probably say profit dropped because of expenses to enter new markets, including computer services in Hungary and fixed- line services in Romania and Bulgaria, Dalibor Vavruska, an analyst at ING Groep NV, said. “They are achieving above-average revenue growth but it's at the expense of profitability,” said Vavruska. He estimates Q3 net income of Ft 20.9 billion for Magyar Telekom, while Erste Bank predicts Ft 22.8 billion. The company reported profit of Ft 23.6 billion for the Q3 of 2005 because of revenue from mobile phones and the Montenegrin business it bought that year. Magyar Telekom, also based in Budapest, increased revenue from its data business and its units the Balkans. It has been dogged this year by a probe into four contracts in Montenegro and said on October 9 it had spent Ft 3.1 billion on legal fees, exceeding the value of the agreements. All companies listed on the Budapest Stock Exchange (BÉT) must report earnings by a November 15 deadline. (Bloomberg)