Inflation is improving margins not raising costs
May 20, 2022
1 minute read
1 minute read
- 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…
- 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.
- 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.