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Inflation is improving margins not raising costs

May 20, 2022
1 minute read

Saham

Our SHARPFOKUS Saham research coverage is still 230 stocks (you’re most welcome to subscribe) but slightly less than half have reported first quarter results (hopefully regulators will make it easier & faster in future).
But less than half is still 100 companies! The total market value of those is just over 5,000 trillion rupiah or about 56% of the total market.
Here’s one interesting insight so far…

Costs

At SHARPFOKUS we look at the cash cost ratio rather than margins in order to forecast the cashflow.
This is not perfect as we don’t get all the information here on non cash costs, but we can try to estimate.
Cash costs means we don’t include things like depreciation, amortization, FX, income from associates etc. We divide the total cash costs into sales to get a (negative) cost ratio. Less negative means higher margins.

Better margins

With many investors focusing on inflation, you might have expected that companies would be struggling with higher costs, but this is not the caee.
The average cash cost ratio has improved every quarter for the last four quarters. From -81.3% in the first quarter of 2021 to -78.9% in the first quarter 2022.
An almost two thirds majority, 65, of the companies had lower costs or better margins. As we’ve said before rising prices is great for our stocks.