Berko: Hungarian phone company and Berry Plastics
Friday, November 22, 2013 7:00 AM
Dear Mr. Berko:
In one of your earlier columns, you recommended buying the stock of a Hungarian phone company that pays more than 14 percent and sells for about $7 a share. I’d like to buy 1,000 shares, but I can’t find the stock anywhere, and my broker says there is no such company. The only one we can find is a Hungarian telephone company in Washington state, but we can’t find where that stock trades or what it sells for. Are there any research reports on this telephone company? I own 400 shares of Berry Plastics Group, which cost me $24.50 last September, and I’d sell them to buy the Hungarian phone company if I could find it. Please email your answer so I don’t have to wait for an answer in the newspaper.
G.L., Moline, Ill.
Your broker’s ignorance may be unwittingly saving you from a foolish mistake. The company you are looking for is Magyar Telekom Telecommunications PLC (MYTAY-$6.22). It offers fixed-line and mobile services, as well as messaging, Internet, data and TV services. It provides these services under the T-Mobile and T-Home brands and has been in business since 1991.
Magyar has 11,000 employees and nearly $3 billion in revenues, and at $6.22, it trades at $3.50 below book value. MYTAY earns 60 cents per share. The $1.08 dividend yields 17.4 percent, while its 205 million shares outstanding figure gives it a capitalization of $1.3 billion. Five years ago, before Hungary got pummeled by the global economic crisis, MYTAY paid a $2.30 dividend, and investors were buying the stock all week between $24 and $27 because the yield was a rich 9 percent.
The eurozone crisis has wreaked havoc on the Hungarian economy, and major shifts in the industry toward integrated telecommunications, information, media and the entertainment market have put enormous pressure on earnings. Meanwhile, the Hungarian gross domestic product continues to decline, and unemployment exceeds 10 percent. The forint (the basic monetary unit of Hungary) continues to remain volatile.
Many analysts now believe that the traditional telecom markets will no longer deliver attractive revenue growth in Hungary. The shares are considered extremely speculative and unsuitable for widows, widowers, orphans and investors with low tolerance for risk. HSBC has an underperform rating on MYTAY, but if you want to pay a $60 fee, S&P Capital IQ has a five-page report that will reiterate what I just told you.
However, some believe that management has made interesting changes in MYTAY’s business model. Those people say that should generate modestly higher revenues, improved earnings and secure the current dividend and could push the price to $8.50. But don’t sell Berry Plastics (lousy management notwithstanding) to own this Budapest-based phone company.
I like Berry Plastics Group Inc. (BERY-$20.55), even though its anemic management can’t put together a good record of revenues and earnings growth and its doddering board doesn’t seem to give a fig. BERY, with $4.6 billion in revenues and 15,000 employees, is my choice for one of Forbes’ 500 most uninteresting companies, even though its products are used daily in nearly every household, drugstore, supermarket, hospital, restaurant and retailer around the globe. BERY manufactures, designs and markets plastic consumer packaging, including injection-molded plastic drink cups, plastic home and party products, garden products, closures, aerosol overcaps, polyethylene bottles, prescription containers and squeeze tubes used for food and beverages, and health care, personal care and household chemical products. And BERY also makes trash can liners; PVC film used to wrap meat and produce; food bags for restaurants, schools and hospitals; and barrier film for cereal, cookie, cracker and dry-mix packages. Among BERY’s patented products is Versalite, which is expected to shake up the hot and cold cup market because its insulation characteristics are far superior to those of plastic foam.
BERY has more than 13,000 customers, including Burger King, Colgate-Palmolive, The Hershey Co., Pillsbury and Procter & Gamble. Earnings for 2014 should be up 25 percent, to $1.21 per share, on a 5 percent increase in revenues; however, the stock doesn’t pay a dividend. And even though BERY’s management and board could use an industrial-sized enema, Reuters and Charles Schwab have an “outperform” rating with a 12-month target price of $26 to $28.
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