Top Hungarian Stocks to Buy

Top Hungarian Stocks to Buy: With an area of 35,920 sq mi, and a population of about 10 million inhabitants, the Central European country, Hungary, is a medium-sized member state of the European Union. Hungarians, who know their country as Magyarország or “Land of Magyars,” are inimitable among European nations in that they speak the Uralic language, which is not related to any other major European language.

Today, Hungary is wholly Budapest-centered, a city that is several times larger than any other city, and an icon of Hungarian culture.

This capital city dominates the country, and is home to a majority of the country’s scientific, scholarly, cultural, historical, academic and artistic institutions.

Hungary has experienced strong economic growth over the past decade. Its GDP growth of around 5% has been the fastest in the EU.

Here, we look at top Hungarian stocks to buy including those operating in pharmaceutical, telecom, energy and financial sectors.

Gedeon Richter Operates In 40 Countries

Headquartered in Budapest, Hungary, Gedeon Richter Plc. [BPSE: RICHTER] is an innovation-driven specialty pharmaceutical and biotechnology company.

The company is engaged in manufacturing, research and development, and sales and marketing of products related to gynecology, the central nervous system, contraceptives, cardiology and gastrointestinal drugs among other therapeutic areas.

It is one of the largest companies of the industry in the Central and Eastern European regions. The company manufactures more than 200 drugs and operates in more than 40 countries. Gedeon Richter plc has a primary listing on the Budapest Stock Exchange and is a constituent of the BUX Index.

Gedeon Richter Has A Robust Balance Sheet

Although the pharmaceutical sector is commonly better shielded from crisis shockwaves, it was not totally immune from the impacts of global COVID pandemic as the lockdown negatively impacted supply chains and logistical routes.

The company, however, weathered it well, thanks to its geographic and therapeutic diversification and a strong balance sheet.

Results achieved in the quarter ending March for Gedeon Richter Plc.  were favorably impacted by royalty proceeds from Vraylar®, which remains to date the fastest growing oral antipsychotic drug in the USA.

The company also experienced a high growth rate over 20%, primarily as a consequence of excess purchase of certain OTC products in preparation for the commercial lockdown.

Dividends, as approved by the Board of Directors on 28 April 2020, totaled HUF 11,742 million. Additionally, Vietnam with oral contraceptives, Australia with Bemfola® and Japan with teriparatide also made healthy contributions to the sales performance achieved during the reported period.

Will Government Stake In Richter Be Problematic?

On 30 April 2020 – Richter-Helm Biologics, a Richter and Helm joint venture, announced that it had entered into an agreement with US-based INOVIO to expand its manufacturing partnership in order to support large-scale manufacturing of INOVIO’s investigational DNA vaccine for COVID-19.

Richter Gedeon was in news recently after its Chairman claimed that it could be a potential target for takeover after the Hungarian government decided to transfer the share owned by it to an education foundation.

Prime Minister Viktor Orban’s government bestowed 10% stakes held by the state in the drug maker to Budapest’s Maecenas Universitatis Corvini and 10% to another education foundation.

The move comes amidst the Government’s intentions to allow the educational institutes to finance themselves from the dividends generated rather than be dependent on the Government for its finances. Post the transfer, the Government will be left with 5% of Richter shares, while 75% stake in the group is publicly traded.

Richter Chairman Erik Bogsch expressed concern that the state, with the dilution of its stake, will lose its position to block takeover bids via its 25% plus one share stake.

“I am certain that (the current government) will do its utmost to prevent a possible hostile takeover. Still, the new shareholder structure would open up the door to Richter becoming a takeover target,” Bogsch said in an interview to a website.

He expressed skepticism about whether the education institutions could fully fund themselves from dividends, and would not resort to selling their partial or full stake.

However, it is not the first time that talks have surfaced about the pharmaceutical and biotechnology company’s takeover. It was way back in 2014 when U.S. peer Forest Laboratories Inc was said to be mulling a bid. Richter then had dismissed the speculation as “entirely unrealistic”, while no comments were forthcoming from Forest.

Magyar Telekom Revenues Are Stable

Magyar Telekom Telecommunications PLC. [BPSE: MTELEKOM], formerly known as Matav, is the largest Hungarian telecommunications company.

The former monopolist, now a subsidiary of Deutsche Telekom, offers a full range of fixed-line residential and commercial and mobile telephone services, data transmission, Internet access and cable television services.

Magyar Telekom Telecommunications serves customers in Hungary, and is part of the T-Mobile Group, one of the world’s largest mobile telephone service providers.

For the first quarter ended March 31,2020, total revenues for Magyar remained broadly stable year-on-year at HUF 159.3 billion in Q1 2020, as increases in telecommunication service revenues in both, Hungary and North Macedonia, were offset by a decline in Hungarian System Integration and IT sales.

Magyar Telekom Profits Have Declined

Profit for the period declined from HUF 4.0 billion in Q1 2019 to negative HUF 0.8 billion in Q1 2020, as the forint weakened significantly against the euro, leading to a deterioration in net financial results.

Mobile revenues increased by 3.4% year-on-year to HUF 79.4 billion in Q1 2020. Fixed line revenues decreased by 0.6% year-on-year in Q1 2020 to HUF 47.6 billion, whereas TV revenues increased by 5.3% year-on-year in Q1 2020 to HUF 11.5 billion, owing to the continued growth of the IPTV subscriber base which offset lower ARPU levels.

Gross profit decreased by 0.8% year-on-year in Q1 2020 to HUF 82.3 billion. 

Given the high level of uncertainty regarding the duration of the restrictions and their impact on the economy, the company is vigorously taking up cost optimization measures along with investing heavily in infrastructure.

The roll-out of its fiber network remains a key priority with the company, doubling the capex in comparison to the first quarter of 2019.

Since acquiring spectrum licenses related to 5G and mobile broadband services, the company commenced commercial 5G services in early April with intentions of steadily expanding its coverage over the coming months.

OTP Bank Has Massive Market Share

OTP Bank Group [BPSE: OTP] is one of the largest independent financial services providers in Central and Eastern Europe. It is the largest commercial bank in Hungary, with over 25% market share.

The group offers full range of banking services, including corporate banking services, investment and fund management, mortgage lending, life insurance, refinancing, leasing and asset management, life annuity, e-services, loan and deposit facilities, and pension funds.

The bank serves more than 13 million clients in more than 10 countries, namely Hungary, Slovakia, Bulgaria, Serbia, Romania, Croatia, Ukraine, Montenegro, Albania and Russia.

OTP Bank Leverage Is Very Reasonable

With a market capitalization of around 9 billion, OTP falls into the category of a major commercial bank.

Post the 2008 Financial Crisis, and the set of reforms, primarily Basel III, that it instituted for enhanced supervision and regularization of the banking sector, market confidence in such large banks has been strengthened.

The Budapest, Hungary-based OTP is held to strict regulation. OTP, with a leverage ratio of 8x, attests to its strong leverage management as the equity it has sufficiently outstrips the debt it has accumulated for its business operations.

A low level of leverage is always desirable as it shows that the bank is fully capable of paying back its debtors should such an adverse situation arise. It also means that the bank can take on further debts to shore up its capital cushion without the fear of tinkering with its financial position.

OTP Bank Loan Ratio Is Excellent

Additionally, loans make up of around 53% of OTP bank’s total asset which is again a good achievement given that they should not be higher than 70% of total assets of a bank. With just over half of the bank’s total assets tied up in the form of illiquid loans, the bank strikes a fine balance between interest income and liquidity.

OTP is a commercial bank, and like any other commercial bank it profits by lending out its customers’ deposits as loans and charging an interest on it. Now there are two things associated with loans and customers’ deposits.

Loans are given out for a specific term, which means they cannot be readily realized. In contrast, banks need to pay customer deposits as and when they demand it. Such an arrangement creates a discrepancy between illiquid loans and liquid deposits, which, in turn, could create considerable problems for a bank if any unusual event puts it in an uncomfortable position wherein it is urgently required to repay its depositors.

Loan to deposit ratio is generally 90%, whereas in the case of OTP it is close to 70%, which means the bank’s loans are less than its deposits, placing it in a fairly comfortable position to meet any quick liquidity needs. Also, the bank is in a strong position to generate additional interest income given the large headroom for growth in loans.

All in all, OTP ticks all the right boxes when it comes to liquidity and leverage.  It signals the bank’s ability to deftly meet its financial obligations in an event of any adverse and unpredictable macro event such as the current Covid contagion.

MOL Magyar Olja-es Gazipari Was SO Profitable

MOL Plc. [BPSE: MOL], also commonly known as MOL Group, is a Hungarian multinational oil and gas company, which owns and operates refineries, oil and gas pipelines, service stations, and warehousing and oil product storage activities.

The company, together with its subsidiaries, engages in the exploration, refining, distribution, marketing, and production of crude oil, natural gas, and gas products in Hungary and over 30 countries worldwide. Headquartered in Budapest, MOL is Hungary’s most profitable enterprise.

Plunging oil prices, along with the Covid, pandemic do not inspire much confidence in energy stocks. However, even during this period of economic uncertainty and crisis surrounding the energy industry, MOL’s resilient integrated business model ensures it maintains its liquidity and financial flexibility.

The company’s clean CCS EBITDA increased by 21% YoY in Q1 2020 to USD 622mn, as the coronavirus pandemic had as yet limited impact on operations. Oil & gas production rose 1% QoQ in Q1 2020 to 110.6 mboepd on higher volumes in Hungary.

Magyar Olja-es Gazipari + Chevron

The energy company, however, reported a net loss of USD 152mn on the back of large inventory and FX losses. For investors seeking dividends, it was bad news as the company decided to allocate all the 2019 earnings to retained earnings. This meant no dividend distribution for now, though the company promised to revisit the decision once the situation normalizes.

Also, MOL successfully closed the acquisition of Chevron’s non-operated interests in Azerbaijan, including a 9.57% stake in the Azeri-Chirag- Gunashli (“ACG”) oil field and an effective 8.9% stake in the Baku-Tbilisi-Ceyhan (“BTC”) pipeline.  MOL also recently acquired Chevron’s stake in a giant oilfield in Azerbaijan for $1.57 billion as the US giant decides to shift out of the central Asian state to refocus on production at home.

Members of MOL Group include the Croatian and Slovak formerly state-owned oil and gas companies, INA and Slovnaft.

Recently, there was report of the Croatian government starting talks with MOL on a possible buyback of shares in INA by the end of June.  MOL holds a 50% stake in INA. MOL has shown its willingness to discuss the sale as it would shore up its liquidity.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.