Among the billions in profits, the CAC 40 plays with inflation
While many French people are wondering how to fill their gas tanks and pay their electricity bills with the rising inflation caused by the war in Ukraine, for others everything is fine. In fact, the companies included in the CAC 40, the index that brings together the largest French market capitalizations from various sectors, have already accumulated almost 73 billion in profits in the first half of the year.
This represents an increase of 24% compared to the first half of 2021, when the same companies had made 58.8 billion profits, while Eurofins Scientific was not yet in the CAC 40. That figure could swell a bit as only 38 companies have released their figures, with railbuilder Alstom and liquor specialist Pernod Ricard having staggered fiscal years.
But why such a discrepancy?
Well, inflation hasn’t hit everyone equally. In terms of raw materials and energy, for example, rising prices have given companies in the sector a boost. Oil and gas giant TotalEnergies more than doubled its earnings in the second quarter, posting the CAC 40’s best-ever net result for the half-year at more than €10.4 billion.
It is followed by the world number two in the steel industry, ArcelorMittal, which took advantage of the rise in steel prices and reached almost 8 billion euros. Engie, the main gas supplier in France, has now more than doubled its profit to 5 billion euros.
In luxury, money is not a problem
Luxury, another heavyweight in the CAC 40, stood out despite a drop in sales in China, one of its main markets, as brands were able to raise prices without losing customers. “They depend on a wealthy clientele who are not bothered by price increases,” says Mimoza Bogeska, managing director of the management company Monocle Asset Management.
“They have also benefited from the strengthening of the dollar against the euro because their production costs are in euros and they sell a lot in dollars,” she adds. LVMH, Kering and L’Oréal have seen a combined profit increase of more than 36% compared to the first half of 2021 with comfortable margins.
The CAC 40 not quite over the mountain
Some groups have nevertheless suffered the shock wave of the war in Ukraine, such as Renault and Société Générale, which withdrew from Russia after the conflict erupted. Renault sold its stake in manufacturer Avtovaz, which notably makes the Lada, and Societe Generale its stake in bank Rosbank, resulting in billions of euros in charges.
“The hardest part is ahead of us,” says Bénédicte Hautefort, founder of fintech Scalens, which specializes in digitizing the relationship between listed companies and investors, who believes that the economic environment is likely to weigh on companies in the second half of the year. With inflation and the increase in the key interest rates of the central banks, which increase the cost of borrowing and thus make new financing more difficult, some economic actors are even anticipating a recession in the global economy.
A testament to investors’ distrust, the CAC 40 stock market index has lost around 10% since the start of the year, despite a very positive July with the release of the results.