SIMON BROWN: I’m chatting now with Carmen Mpelwane, portfolio manager at Absa Asset Management. Carmen, I appreciate the early morning time. Petrol is up almost R10 over the last year and we’re still getting a 75-cent cut from government…. Do you sort of cast your eye over your portfolio or the investment universe when petrol rockets like this, or is it more a case of ‘it’s passing’?
CARMEN MPELWANE: It’s so difficult for it not to touch any aspect or any sphere of the stock market. We’ve had conversations with certain retailers about their fuel or travelling expenses, and they’ve hinted that, look, it’s not that much of a concern for them. It’s there, they take notice of it, but in terms of the percentage to sales it’s not such a big concern. I think the bigger concern comes into the consumer.
Effectively you are pseudo taxing them by having this increase in the fuel price. You are taking away from their discretionary allocation and you are moving it to non-discretionary.
Added to that, as you’ve mentioned, you’ve got the interest-rate rising environment as well.
So it’s literally coming from all sides, and the question is how does the consumer react in terms of this environment and therefore what impact does that have on the companies? That’s I think more the angle that we take in terms of looking at positioning.
SIMON BROWN: I take your point …. Getting to and from work is non-discretionary. If you’re fortunate enough to have a job, you need to get to the job. Maybe you can work from home, but most people I think are going back into the office – and it is a consumer that is under extreme pressure. It’s electricity prices, it’s Eskom, it’s petrol, it’s just general inflation. Consumer-facing stocks are having it tough and are going to potentially have it tougher.
CARMEN MPELWANE: Absolutely. We can’t discount the fact that certain sectors definitely have a larger impact from the increased fuel price. So, for example, logistics. That’s a no-brainer, obviously largely driven by fuel. And so we’ve looked at, I think, the beginning of the pandemic [when] we had rates at about R14/litre. We are now at almost double that; that’s got to have an impact.
And I guess the question is how are they able to pass this on to their customer in terms of that, or absorb the increased costs? And therefore [there are] possibly or likely reduced margins.
But I think the larger impact is definitely going to be on the consumer, number one. And then, as you’ve mentioned, if we’re going to have increased interest rates how fast are those going to be [increasing], and what is the consolidated impact going to be on the consumer?
SIMON BROWN: And then a quick last question: are there spaces that don’t sort of interact with consumers? I’m thinking manufacturing, I’m thinking mining; maybe they’re a little more immune. But of course they’ve got increases in fuel and Eskom and everything else. So they might not be consumer-facing, but I’m not convinced they’re necessarily immune.
CARMEN MPELWANE: Absolutely not. Even in the time of load shedding, if you have a generator you’re running it off diesel; you can’t get away from that. So it definitely has an incremental impact. It’s about how it’s absorbed by the company, whether it’s a manufacturer, and whether they are able to pass that on to their customer or not. If their customer, as we said, is the end consumer, then it’s a lot harder to do that in the current environment.
SIMON BROWN: Yeah. I have a friend who went to buy a generator on Friday. My sense was that you’re rich, not because you’re buying a generator, but because you can afford the diesel for it.
Carmen Mpelwane, portfolio manager at Absa Asset management, I appreciate the early morning insight.
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