The BUX, Hungary’s stock market index, moved moderately higher for the week, not even 1%, while the US Dow index is close to hitting a new historical high at levels of 13,650 points (closing level on Monday July 9th.)
The BUX is composed of more than a dozen stocks, but only five of them can be considered Blue Chips because of their greater market capitalization. Those so-called Blue chips are: OTP (largest local bank), MOL (oil and gas refiner), MTEL (Telecom), and Richter (the largest pharmaceutical producer in Hungary.)
OTP, MOL, and Magyar Telekom closed flat for the week. The winner for the week was Hungary’s pharmaceutical Richter as it gained almost 5% (closing on Monday 9th July at HUF 38,500.)
Richter might be getting some more attention from big investors as its outlook for the long term seems to become more and more positive, as claimed by Kornel Szarkadi - Szabo head of research in Cashline Securities. The analysts from Cashline have upgraded the stock and say that the pharmaceutical company can reach more than HUF 46,600 by the end of 2008. In their research they claim that Richter could significantly receive heavy buying pressure in the case they have a better than expected second quarter earnings report in August or if the HUF starts weakening against the EUR and/or the USD. A strong forint hurts profits in Richter as it shrinks its gross profit since exports become more expensive. In the case Richter is acquired by another party (and assuming a double-digit growth in 2008) the stock could exceed HUF 55,000-60,000 per share by 2009 or 2010. However, the analyst believes a takeover would not happen until at least 2009. For this matter, the research report should be considered more like a long term buy idea, rather than a short- term buy action with the purpose of “making a quick buck.”
MOL continues in the headlines as the story continues to unravel. Mol, Hungary’s biggest oil and gas company and Eastern Europe’s largest oil refiner by market value ($16.4 billion), continues its plans to buy back shares this year to reduce their number in the market and to avert a potential takeover from Austrian competitor OMV. This week, OMV's CEO Ruttenstorfer reiterated his former comments regarding the purchase of MOL’s stake. He also added that OMV believes that they would not buy MOL until the next few years, which adds a new tone, as OMV's former plans included only a strategic cooperation with MOL. MOL released an announcement where the company effectively rejected OMV's former partnership request adding that they would pursue its own strategy.
This week kicks off the second-quarter corporate earnings reporting period in the US when the first major company from the Dow are due to report. Like the first quarter earnings of this year, analysts and economists lowered the bar of expectations for company’s earnings, which means that companies will not have too much difficulty meeting or exceeding the market prospects. For this reason, I expect that the international sentiment will continue somewhat bullish and that the bull of Pamplona will keep running for the summer season. The Hungarian companies will start reporting their second quarter earnings in August, when we will be expectant about the outcome and whether or not they meet the market consensus. It could be a determining factor of the direction of the Hungarian Blue Chips, but the international sentiment will move the BSE (Budapest Stock Exchange) more than any surprises in their earning’s reports.
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