Hungary's biggest companies, including oil refiner Mol Nyrt and OTP Bank Nyrt, will probably report lower profit or slower growth after the currency strengthened and higher energy and tax bills drove costs higher.
The Hungarian forint is set for a second week of gains, buoyed by optimism on the government's economic reform plans and as the country's budget deficit narrowed more than expected in January. Hungary's government, which had the European Union's widest budget shortfall last year, said February 6 the gap shrank to Ft 196.1 billion ($1 million), compared with its forecast of Ft 224.6 billion. The forint is the world's second-best performer this week of the 71 currencies monitored by Bloomberg. „The forint is supported by the government's economic plans,” said Lars Christensen at Danske Bank in Copenhagen.
„Hungary's cabinet is showing more effort in terms of reforming public finances than other countries in the region.” Against the euro, the forint advanced to 253.36 at 10.45 a.m. in Budapest, from 253.50 on February 2, taking its gain in the week to 0.8%. „The currency may extend its advance to around 250 per euro by the end of the month,” Christensen said. Prime Minister Ferenc Gyurcsány's cabinet raised taxes and cut subsidies to reduce the deficit and aims to lower the gap to 6.8% of GDP this year from nearly 10% estimated for 2006. Hungary, which joined the EU in 2004, needs to narrow its budget gap to 3% of GDP to switch to the euro. It also needs to keep inflation and public debt in check.
Mol, Hungary's largest company, may say on February 12 Q4 net income dropped 24%, according to the median of 10 analysts surveyed by Bloomberg. OTP might say two days later its profit slipped about 1%, based on six estimates. Concern the measures will erode earnings made the benchmark BUX Index the laggard in the region over the past year. „Austerity measures already had some negative impact on the quarter's earnings,” said Zoltán Váradi, who helps manage the equivalent of $20 million in east European stocks at Raiffeisen Asset Management in Budapest. „All are affected by the increase in taxes and other contributions.”
Magyar Telekom Nyrt, the country's former phone monopoly, is forecast to report a 5% increase in quarterly profit on February 13. Gedeon Richter Nyrt, Hungary's largest drugmaker, reported February 7 that net income dropped 40%. The four companies, all of which are based in Budapest, make up 93% of the BUX Index, which has added 7.6% the past year, compared with 23% in Poland's WIG20 Index and a 12%-climb in the Czech PX Index. The forint gained 8% against the euro and 11% versus the dollar in the Q4. A stronger local currency reduces the value of earnings generated abroad.
Mol may also say profit declined because of falling crude oil prices. Net income might drop to Ft 41.6 billion ($213 million) from Ft 54.8 billion a year earlier, the estimates show, after more than doubling in the Q3. „It all went wrong for Mol this quarter,” said Ákos Herczenik, an analyst at Raiffeisen Securities. „Mainly that oil prices sank and the dollar weakened against the forint.” The company is shifting its focus to exploration and production after buying refineries and filling stations in eastern Europe the past five years.
Crude oil prices in the Q4 dropped 15% to $60.20 from $70.65 in the Q3. OTP will probably say profit fell as government measures to cut the budget deficit curbed savings and loan demand. The lender has spent more than $2.2 billion the past five years buying banks from Bulgaria to Russia to reduce its dependence on the domestic market.
In Hungary, the government's budget cuts have included a higher corporate income tax in addition to curbs on disposable incomes. Net income at the lender probably was Ft 40.5 billion, down from Ft 40.9 billion a year earlier. In the Q3, profit grew 31%. „Austerity measures clearly had an impact on OTP's performance as the tax rate is higher for instance,” said Mark Macrae, a Warsaw-based analyst at KBS Securities.
Magyar Telekom, a unit of Deutsche Telekom AG, will probably say profit rose as two units it bought in the past year boosted revenue. Net income probably increase to Ft 15.9 billion from Ft 15.2 billion a year earlier, estimates show. The phone company, faced with lower revenue from its fixed-line business and falling profit at the wireless division because of competition from Vodafone Group Plc, is relying on other businesses to make up for the lack of growth. Sales probably rose 9.7% to Ft 176.9 billion, helped by earnings from local software developer KFKI Zrt and information-technology services company Dataplex Kft.
„Sales are picking up after recent acquisitions, but operating efficiency is not similarly favorable,” said Péter Fazakas, an analyst at Buda-Cash brokerage in Budapest. CEO Elek Straub, the longest serving head of a national phone company in Europe, resigned December 5 after 11 years in the post amid a probe into contracts at the Montenegrin unit. He was replaced by Christopher Mattheisen, who formerly headed the company's fixed-line telephone service. Drugmaker Richter said February 7 its profit slumped as earnings fell in its home market. Unconsolidated net income was Ft 8.1 billion, compared with Ft 13.5 billion a year earlier. Richter struggled as the forint strengthened, Hungary's state-monopoly health insurer imposed lower prices on some drugs and Russia removed some of its products from its list of government subsidized medicine. (Bloomberg)