This blog post is the result of our recent trip to Hungary, which amazed us with its rich historical heritage, cleanliness, and excellent transport infrastructure.
Like Poland, the modern Hungarian state emerged after World War I, following more than 370 years of foreign rule — primarily under the Ottoman and Habsburg empires. During most of World War II, Hungary collaborated with Nazi Germany, in contrast to Poland, whose underground army bravely resisted the occupiers. After 1945, both Poland and Hungary became communist countries and members of the Warsaw Pact. However, Hungary followed a more liberal path: its Communist Party allowed, for example, small private businesses, limited company-level decision-making on production and pricing, and travel to the West. As a result, by 1990, when the Soviet bloc collapsed, Hungary’s GDP per capita was more than 100% higher than Poland’s (USD 3,312 vs. USD 1,629).
However, over the last 35 years, Poland has developed more successfully than Hungary, largely due to the bold economic reforms implemented by Finance Minister Leszek Balcerowicz in the early 1990s. In contrast, especially since 2010, when Viktor Orbán’s Fidesz party first gained an absolute parliamentary majority, Hungary’s macroeconomy has developed weaker and the country-which like Poland joined the EU in 2004-has faced significant international criticism—not only from the EU but also from global investors. The reasons include controversial reforms such as the nationalization of private pension assets, the alleged weakening of courts, the centralisation of media ownership close to the ruling party, and the rejection of several important EU initiatives e.g. on sanctions against Russia.
Poland vs. Hungary: Average GDP growth and nominal salary growth, current inflation rate, government deficit, public debt as % of GDP and unemployment
Sources: Polish Statistical Office, tradingeconomics.com, East Value Research GmbH
The Hungarian capital market vs. other CEE countries
With 40 listed companies and an annual turnover of c. EUR 9bn, the Hungarian stock exchange is the 2nd most liquid one in CEE – with >2x higher annual turnover than the Czech and >3x the Romanian one – but is far behind the Warsaw Stock Exchange (760 listed companies, c. EUR 175bn yearly turnover). The trading activity in Budapest concentrates on just four names: OTP (Bank), MOL (oil & gas), Richter Gedeon (Pharma) and Magyar Telecom (Telco). Despite a weaker economic performance and less solid public finances, the main Hungarian equity index BUX has outperformed the Polish WIG (both exclude dividends, which in both countries are significant) by a wide margin over the last 10 years (367.5% vs. 109.5%).
What are currently the most interesting stocks in Hungary?
In our opinion, only a handful of stocks on the Budapest Stock Exchange are actually tradeable for international investors.
While bank stocks—especially OTP—are fundamentally strong, we believe their valuations are currently at a peak and are likely to decline as central banks cut interest rates. However, several other companies appear undervalued, offer attractive dividends, and are expected to continue performing well.
The first of our top picks is Richter Gedeon, a vertically integrated specialty pharmaceutical company with global sales, >11,600 employees and a yearly R&D budget that corresponds to 10% of its annual sales. The company’s pipeline of projects includes several dozen projects in the areas of Neuropsychiatry, Biosimilars, Women’s Healthcare and Blood & Metabolism/Cardiology/Pain & Neurology, most of which have already completed or are currently undergoing clinical studies. Richter Gedeon has been paying attractive dividends (current DYield equals 4.8%) each year since 1995 and is currently trading at PEG ratios of just 0.65-0.70 based on analyst’ EPS estimates for 2025E-2026E.
Another company, which we like now, is Magyar Telecom, the largest Telco operator in Hungary and Northern Macedonia that is owned by Deutsche Telekom. Out of 9.6m Hungarians and 1.8m North Macedonians, Magyar Telecom has 6.6m mobile clients, 1.6m broadband, 1.4m Pay TV and 1.2m fixed voice customers. The company, which due to its stable cash flows has been able to pay dividends and conduct buybacks each year since 2020, is currently trading at an EV/EBITDA 2025E of 4.9x (Orange Polska: 5.3x, Hrvatski Telekom: 7x) and a DYield of 4%. Its net gearing equals 47.4% and is thus at a reasonable level.
Finally, our third pick is MOL, which is the Top 3 integrated oil and gas company in all countries of the fast-growing CEE/SEE region. In addition, it has upstream operations in the CIS region incl. Russia (which we consider the main risk), Iraq, Pakistan and Egypt. According to its latest investor presentation, with currently >25,000 employees it explores and produces oil (c. 94,000 of oil equivalents per day), has a capacity of 380,000 barrels per day in currently 3 refineries, operates 2 petrochemical facilities, >2,300 service stations and a 6,000 km natural gas pipeline in Hungary. Its current reserves equal 332,000,000 barrels of oil equivalent. Latest net gearing equals 17.4%, the current EV/EBITDA 2025E is historically low (2.6x vs. a 5-year average of 3x) and the DYield of 9.5% very attractive. In 2025E-2030E, MOL plans to spend 30-40% of its c. USD 1.9bn CAPEX on low-carbon circular projects in the areas of waste management, biogas production, green hydrogen and solar, among others.
Source: CapitalIQ, East Value Research GmbH