The Wirecard scandal has resulted in a couple of books already, most of them quite good. But the ultimate book is of course the one from FT reporter/investigator Dan McCrum who dedicated more or less 7 years of his career to this and significantly contributed to the ultimate revelation of this “House of Cards”.
Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!!
Inflation & Pricing power
One of the obvious strategies for for investors in an inflationary environment is to pick companies that have “Pricing power”. Pricing power means that companies should be able to raise prices at least as quickly as costs rise.
Now one could try to do some deep thinking if and how different business models react to inflation. As I am a more “hands on” guy, my solution is to look at actual numbers and then try to draw my conclusion.
For any company that is producing material goods, the best indicator for pricing power in my opinion is Gross profit, i.e. the difference between selling price of a product minus the direct costs to produce them.
A company with pricing power should keep the gross margin or ideally even improve gross margins in an inflationary environment.
And another 10 randomly selected Danish shares. This time, only one stock made it onto the watch list. With 80 out of 179´stocks, we have covered almost half of the Danish universe by now..
71. Scandinavian Brake Systems (SBS) A/S
SBS is 4 mn EUR market company that seems to be a failed automobile supplier. “Pass”.
72. Relesys A/S
Relesys is a 34 mn EUR market cap SAAS software company that was IPOed in early 2021 and has lost -50% since then. The company has around 5 mn EUR in revenues in 2021 and is growing at around 30-40% p.a.
Long time readers know that I have a soft spot for insurance companies. Some weeks ago, I started looking into Insurtech companies and then I looked into Lemonade’s 2021 earnings. Since my first post, Lemonade has lost another 1/3 of its value and is now significantly below its IPO price.
What I like about Lemonade is that they indeed created a “fresh” insurance brand, however the numbers were clearly challenging. My main takeaways from last time were as following:
- Growth is slowing
- marketing cost is increasing (per new dollar premium)
- The business is not really scaling
Already a week ago, Lemonade issued its Q1 earnings. This time, I have compiled a few line items that I find interesting on a quarterly basis in order to analyze things more deeply:
Looking at randomly selected Danish shares is a nice exercise in order to calm one#s nerves during times like these. here is yet another batch of 10 Danish shares. This time, two of them I found worth to “watch”, for one of them i even started an initial position.
61. Genmab A/S
Genmab is a 18.4 bn Biotech company that manufactures among other stuff antibodies that are used for cancer treatment. The company is extremely profitable, with net margins between 35-60%.
At 50x 2021 earnings and 17x revenues, the stock is not cheap, despite a drop in profits in 2021.
The share price has corrected a little but investors that hold the stock for a few years should be still very happy:
As inflation is something that we haven’t seen for a few decades, I am still trying to get my head around this trying to understand how this could influence investments going forward. In this posts I just wanted to touch three areas: Inflation linked bonds, pension liabilities and highly indebted countries.
- Inflation linkers
When looking for assets that gain or at least compensate for inflation, one should not forget Inflation linked bonds. Per construction, they compensate at least fully for the officially measured inflation.
In addition, Inflation linked bonds function also as an instrument to observe “implied” inflation rates, I.e. the market price of an inflation linked bond contains the investor’s expectation for future inflation rate.
The German agency for debt has a good page (in German) that explains how these securities work. One thing to mention is that most bonds are linked to Eurozone inflation, not German inflation.
Looking at the detail page of the 2033 linker we can see that this bond carries a 0,10% coupon and trades at a yield of -1,73%. Comparing this with the 2032 fixed rate bond (there is no 2033 fixed rate Bund) that yields around 1%, we can estimate that the difference between the two yields (1-1,73%)= 2,73% is the market’s current estimate for the inflation in the Eurozone for the next 10 years or so. (Remark: in reality, this is more complex, see for instance here, but for this exercise it is good enough).