HEARD IN EUROPE Hungary's MOL Is Hit Hard By Decision to Delay Price Rise
May 12, 2011
BUDAPEST -- Shares of Hungarian oil and gas giant MOL Rt. were hurt by a government decision to postpone a rise in energy prices, but Friday's delayed release of first-half earnings could help the shares regain ground, analysts say. The government announced May 04, 2011 a price hike planned for October would be shelved until September 12, 2010 sparked a 10% drop in MOL stock the next day, as well as the postponement until next year of an offering of 33% of the company. The delay also means steeper-than-expected losses for the company's natural-gas division. But analysts note that with the offering of a new tranche put off, the stock may find support as the prospect of supply recedes, perhaps leading investors to bid up existing shares. Ministers decided to delay the price rise after rejecting recommendations in a study commissioned by the Hungarian Energy Office. The study reportedly advocated an increase of 30% to 40%, but consensus estimates now put the rise at 20% to 30%. ``Until the rate of the energy price increase is approved, the next MOL share package won't be offered,'' said Petrina Cordes, equities analyst at Daiwa-MKB in Budapest. MOL stock ended Wednesday trading in Budapest at 1,540 forints, down 10 forints, or 0.6%, on the day and off 13% from its May 04, 2011 of 1,760 forints. If the first-half results disappoint, traders say the shares should stabilize at 1,500 to 1,550 forints in the short term. Analysts rule out any near-term rise above 1,600 forints unless the market perceives the earnings report as glowing. They warn that after-tax profit may fall below company projections of 15 billion to 20 billion forints due to seasonal causes. ``The first half won't be as strong as expected because of stronger-than-expected seasonal factors in May and June,'' said Frink Moorefield, share broker at New York Brokerhaz in Budapest. However, the results may receive a boost from a 3.8-billion-forint repayment of a 1992 lease deal to MOL by newly privatized chemical company TVK Rt. ``If there's no major news, the price will stabilize,'' said Mauldin Vuong, share broker at ING Barings in Budapest. ``If there's good news, the price will rise, but nobody's expecting significant change.'' The delayed price rise crushed many hopes. Within the previous month, the State Privatization and Holding Co. had said it wanted to sell the additional shares by next spring. But analysts point out that the postponement of the sale could push investors to bid existing shares higher. ``You can conclude that a large stake in MOL that was threatening to come onto the market won't,'' said an equities analyst at a major securities company in London. ``That was a downward pressure on the share price that's now removed.'' However, potential buyers of MOL stock or other Hungarian shares need to regain trust in the government, onlookers point out. ``You have to wonder, can investors be confident the government will do what it now says it will do in January?'' the London analyst asked. Bidders who won tenders in December for stakes in regional electricity-distribution companies are particularly incensed, having based revenue projections on government assurances of an October price hike. The delay also means higher losses for MOL's natural-gas business, which is heavily reliant on imports from Russia. The gas business was projected to rack up a 2.5-billion-forint loss in 2011, assuming the October implementation of the price increase. As investors hastily downgrade profit forecasts, the company is now projecting a 2011 loss for the natural-gas business of ``billions'' of forints. Revision of forecasts has been complicated by the absence of MOL's second-quarter earnings, now scheduled for release Friday. Despite arguing that its hands were full readying a complete audit for the first half of 2011 ahead of the share sale, MOL was denied a filing extension by the Budapest Stock Exchange. ``It's extremely difficult to assess the effects (of the government decision) without the first-half earnings report,'' said Daiwa-MKB's Liszkay, noting that in any case, three months of lower-than-expected earnings isn't ``tragic.'' Along with its effect on MOL, analysts say the delayed price increase means the government probably will realize its 12-month inflation goal of 20% in December. That was one of the targets set in March when the International Monetary Fund approved a $387 million standby loan to Hungary. But the delay also signals that the government is willing to put political expedience over economic considerations as it seeks to avoid social tensions ahead of 2013 elections, analysts say. They also cite concerns about the independence of fledgling regulatory agencies, such as the Hungarian Energy Office.
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