–
28 may 2021
20:44
–
Higher inflation threatens to affect your purchasing power and savings. Where can you go to avoid that threat?
–
“How much do I owe you, Katja?”
‘Yes’s 23 euros.’
‘Isn’t that more than usual?
‘Yes, but I can also receive fewer people at the same time. And I have to buy sanitizer gel and put up screens. And everything is saved. I have to follow hey.’
–
That’s my conversation during the bill at the hairdresser to put my head of hair in peak shape again. The price increase compared to the pre-corona level? Two full euros, converted 9.5 percent. A similar story at the bakery. My favorite forest bread has become 20 cents more expensive, or plus 8.5 percent. A triple in the neighborhood cafe? 60 cents more to 4.50 euros, a price increase of 15.4 percent, despite the VAT reduction in the catering industry. My gross salary in January? That was only 0.8 percent and a lot less net.
–
For those who are still in doubt: inflation is back and is eating away at purchasing power. Even the traffic fines increase by 9 to 25 euros under the guise of administrative surcharges. In the US inflation has risen above 4 percent. Higher prices are also starting to trickle down into official statistics in Europe.
–
From its headquarters in Ixelles, D’Ieteren sent the glad tidings that profits will increase by at least 45 percent instead of 25 percent this year.
–
That won’t stop consumers from opening their wallets wide after the lockdowns. For many it feels like liberation after the war. The order books at the companies are full and some sectors are struggling with shortages. The booming demand gives firms pricing power, the ideal recipe for even more inflation. This may be a temporary phenomenon, if it does not result in higher wages and if supply and demand rebalance after the euphoria. But that is not a certainty.
–
As a frugal investor, it is best to hedge against the inflation specter. Rising prices eat up your accumulated capital. Unless you invest it in something that pays more than inflation. Not a near-zero interest savings account, but in companies that can at least increase their profits and dividends in line with inflation.
–
Warren Buffett
For tips, we can turn to Warren Buffett. The 90-year-old investor guru has even thrived in times with price increases of 12 percent and mortgage rates of 20 percent. In one of his annual reports, he gives two pieces of advice. One: invest in companies that can easily raise their prices without losing market share. Two: choose companies that need to invest little extra to be able to handle larger volumes.
–
Where do we end up when we go over the Brussels price list? D’Ieteren
proved to belong on the list. Daughter Belron, known for the car window repairer Carglass, saw the quarterly turnover increase by 9.5 percent, while the mechanics only performed 1.4 percent more jobs. Each repair brought in a lot more money. This is partly due to the advance of SUVs with their larger and more expensive car windows, and the increasing number of sensors on the windows that have to be recalibrated.
–
The popularity of the SUV is even more reflected in the figures of the car branch. D’Ieteren sold 7.1 percent fewer cars, but achieved 6.1 percent more turnover. The market share of the SUVs with their generous margins rose from 40 to 48 percent. A disadvantage is that we will soon have even less space in the underground parking garages, because often the gigantic square pseudo-terrain vehicles take up two places.
–
Electrification also plays a role. Almost one in five cars sold was a plug-in car, which costs a lot more than a petrol or diesel. In the same period last year it was 11 percent.
–
The higher margins result in profit leverage. From its headquarters in Ixelles, the family holding company sent the happy news that the profit this year will increase by at least 45 percent instead of 25 percent.
–
Speculoosje
Food companies with strong brands are also historically good hiding places from inflation. Lotus Bakeries
occupies most of the cookie shelves in supermarkets, and has been able to raise prices and gain market share without any problems in recent years. Nobody wants to give up their speculoos – sorry, biscoff. Matthieu Boone, CEO Jan Boone’s predecessor, once said that prices never fall once they are raised, even if the raw materials become cheaper afterwards. Except in the discount country Germany, where Aldi and Lidl are masters. Otto Normalverbraucher pays up to 10 percent less than Jan with the Pet.
–
A little more inflation is good for department stores. I recently came across a Canadian study that concluded that supermarket stocks score well. That has to do with labor costs. The sector has many employees with relatively low wages. Inflation-related wage increases are often smaller than the price increases at the checkout. So if margins are equal, profits increase. Colruyt
welcomes the first shoots of inflation in its latest annual report.
–
You are also in the right place with companies in sectors where scarcity prevails. The foam rubber specialist Recticel
has already raised its prices several times this year. Anyone who builds needs insulation. Or windows and doors, where Deceuninck
benefits from.
–
Colruyt welcomes the first shoots of inflation in its latest annual report.
–
Some companies have agreements with their customers to pass on more expensive raw materials as quickly as possible, such as Resilux
. The PET bottle maker emphasizes that investors should therefore not pay too much attention to the turnover evolution, but rather to the added value it realizes.
–
Companies with a high return on equity also offer more protection. Even a company that achieves a return of 5 percent can yield a real negative return when inflation is high. Insurers often score well here. This week the annual bill for my housing policy fell into the mailbox: again plus 3 percent. I also dug up older invoices: in ten years AXA insurance became 56 percent more expensive for exactly the same. The stock returned 150 percent during that period, including reinvested dividends. A good insurance against inflation. Insurers also benefit from the higher interest rates that are often associated with a prolonged inflation climb. The same goes for the banks.
–
Landlords
Landlords of buildings that are in high demand are also increasing their prices in line with inflation or a little on top of that. The income of the warehouse owners WDP, Montea and VGP or the housing specialist Home Invest seems safe in the coming years, while the value of their properties must increase because new construction is also becoming more expensive.
–
If price-makers are carrying high debts, a significant surge of inflation is taken into account. Due to the price increases, their turnover will increase, and so will their profits if they manage to keep their margins stable. The outstanding debts, on the other hand, remain the same. The result: the debt ratio crumbles and it becomes easier to repay the loans.
–
For AB InBev
that sounds like music to your ears. The brewer, which taps one in four beers in the world, bears a debt of 83 billion euros. That’s 4.8 times last year’s gross operating profit (EBITDA). To keep the mountain of credit manageable, AB InBev had to sell 49 percent of its US can bottling, float 13 percent of its Asian branch, sell its Australian subsidiary and more than halve its dividend.
–
With an extra shot of inflation of roughly 1 percentage point, the EBITDA will rise by about 200 million euros extra per year. If you add that to the average analysts’ forecasts, the debt ratio could fall to 3.4 times EBITDA by the end of 2023, significantly improving the stock’s risk profile. In addition, AB InBev has proven its ability to master inflation like no other, even in countries with hyperbolic price increases such as Argentina. The Argentinian pays 46 percent more for the same than last year. You would spend your money for less. Because the best way to beat inflation is to shop, my iPhone-seeking daughter advised.
–
–
:strip_exif()/i/2004376808.jpeg?f=fpa "Ubisoft releases Far Cry 6 on October 7, showing gameplay footage – Gaming – News")