FNArena’s Weekly Insights – July 11 2022

In this week’s Weekly Insights:

-Corporate Profits – The Next Challenge
-Conviction Calls

By Rudi Filapek-Vandyck, Editor FNArena

Corporate Profits – The Next Challenge

The first six months of 2022 have not been easy to navigate for investors, but the next challenge might turn out just as tricky with analysts forecasts looking too rosy and companies potentially too optimistic about their ability to absorb the many changes happening while also maintaining their profit margin.

While much attention is going out to local retailers and other consumer-related companies, as share prices for the likes of Nick Scali ((NCK)), Super Retail ((SUL)), Temple & Webster ((TPW)) and Wesfamers ((WES)) might have been over-sold (at least for the medium term), one sector that has equally caused a lot of damage to investment portfolios is the local mining sector.

It was not simply a matter of macro-factor selling either as companies including OZ Minerals ((OZL)), St Barbara ((SBM)) and Dacian Gold ((DCN)) fessed up to what should have been on every investor’s mind beforehand: miners might have been enjoying strong price rises for their raw products, but those companies in the field are equally users of electricity, diesel, gas, and other commodities, while higher transport costs and staffing problems, not to mention excessive rain on the East Coast and yet another wave of covid-infections further add to operational risks.

Sure, the prospects of an economic recession in key countries next year should be on every investor’s mind, but what about cost pressures right here, right now?

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