Last week we also saw important macroeconomic data come for Hungary, which indicate the rate of growth of its economy and the inflation.
Hungary's preliminary third quarter growth in GDP (Gross Domestic Product) data of 1% came significantly below the market consensus of 1.55%, says Reuters. Adjusting with the calendar effects, the figure showed a 1.1% rise year on year.
In our view, the weak GDP data might sustain rate cut expectations. However, the latest comments from the Hungarian National Bank (MNB) suggests that it is still concerned about higher inflation figures (due to the rise in food prices, and 2008 wage agreements.)
The CPI (consumer price index, a measure of inflation) data for October was 6.7%, higher than market expectations of 6.3% (again, as reported by Reuters), and up from the previous figure of 6.4%, year on year, in September.
The MNB will, therefore, have difficulty lowering interest rates, currently the highest in the EU at 7.50%, as inflation is still too high.
Richter merger?
The Hungarian pharmaceutical company, Gedeon Richter, has announced plans to combine with Poland's Polpharma to create the largest pharmaceuticals firm in the central and eastern European region.
The Richter-Polpharma group would be the second largest generic producer for the Russian market, and the largest producer in central Europe.
It is estimated that the merger will have a combined market capitalization of Ft923bn ($5.3bn).
The combination is subject to approval by Richter's shareholders at the group's annual meeting on Dec 18.
Erik Bogsch, Richter's chief executive, said the acquisition targets outstanding growth potential in Poland, Russia and ex-Soviet countries.
The press quoted him as saying, "Consumption per capita is low in Poland, and that's where we feel the biggest potential growth in the region will come from.
"Consumption per capita stands at $240 a year in Hungary and Czech Republic, and at about $140 in Poland."
On the Budapest Stock Exchange (BSE) on Wednesday (Nov 15) closing, before the news came out in the public, the closing price for the Hungarian pharma was Ft36,360 ($209), with a volume of 30,000 shares traded.
A day later when, the news broke, the volume increased 10-fold, and the closing price of last Thursday was almost 7% higher.
Most of the local brokerage houses have raised their target prices for Richter's shares, as they realized the potential of such a merger.
Richter announced the intended merger the same day as its third quarter (3Q) earnings report, which pretty much came in line with market expectations; although there were some disappointing domestic figures, there were also more uplifting ones in terms of exports (especially from Russia.)
The lack of positive numbers from local sales is not surprising, given the government's current health care reforms, which have forced the pharmaceutical company to decrease prices and forced the drug producers to subsidize some of the costs for health care in Hungary.
The analysts of Cashline Securities expect the export sales to continuously improve, and the domestic market to stay flattish.
This is one of the reasons why we have a buying recommendation on the shares.
In addition, the new merger will provide a good reason to buy Richter even while there is a such low economic growth in the country, and uncertain financial turmoil in the US and European markets.
The 3Q earnings of OTP Bank, Hungary's largest lender, were also published late last week.
The results were better than the market consensus, due mostly to a net profit of Ft55.68bn ($320.5m), up 4% yoy, above the expected Ft54.1bn ($311.4m), as reported by Portfolio.hu.
Improving figures from the underlying business, and rising profit at the Russian unit (which struggled in the previous quarter), was expected to make OTP rally at least in the short-term.
However, because of the negative banking sentiment currently prevailing in the US and Europe, OTP has followed the negative international trend, and its price has been eroding for the past weeks.
Mol, the region's largest oil and gas producer, reported third quarter earnings more or less in line with the already low market expectations.
Upstream
The upstream (exploration and production) had some disappointing figures, with lower production in Hungary and a weaker dollar.
In fact, the upstream profit delivered a 43.9% fall yoy (to Ft19.6bn ($112.8m), much below the market consensus of Ft25bn ($143.9m).
The petrochemical division recorded outstanding performance. Unfortunately, the segment is not significant enough to counterbalance the negative impacts at other sections of the business.
The Cashline Securities analysts don't feel that MOL is cheap to buy. They have published a report with a recommendation to "hold" the shares after the EU Internal Market Commissioner, Charlie McCreevy, officially started legal action against Hungary over Lex MOL, or MOL law.
The new law protects Hungarian companies from any hostile takeover attempts from a state-owned foreign counterpart.
Lex-MOL was drafted after an attempt by Vienna-based oil company OMV for MOL, in a deal which could value MOL at $20bn.
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