REVENUE GALORE EXPLORED

As part of its monthly strategy review of European equities, AlphaValue produced the simple chart below, merely tracking the increase in sales of European corporates under coverage. That would exclude Financials and Deep Cyclicals as revenues for such businesses are somewhat out of control.

Sales suddenly up

The €600bn gain (+10.7%) in revenues in 2022 is a departure from the sort of growth experienced over the previous 15 years with +3-5% being the norm. It is fair to pinpoint that the $ up 16% ytd probably accounted for a good 4% of that 11%. That would not happen every year.

As a reminder most European corporates waxed lyrical on their pricing power capabilities. That was meant to avoid questions about the utter lack of volume gains. So that the above 11% sales expansion is a price-driven one. The next few quarters will tell whether that fairy story sticks.

On a sector basis, it takes 10 sectors (a third of total) to cover 75% of the 2022 sales increase (see table). The crux of the issue is really with Autos, Utilities, Transport and Chemicals. Utilities are quasi oil stocks or rather gas ones from the point of view of their sales (but not from a profit standpoint). Their revenues are accidental. Chemicals, are also recording the pass-through of higher feedstocks, hence their revenues will adjust down when input prices trend down. We are left with big question marks for Autos as consumers balk at scarcity-driven prices and the upcoming competition of Chinese cars, and for Transport. The growth of Transport revenues is also tricky to read, as the bulk actually comes from fast recovering airlines (which may last) while the freight side is expected to slow down.

In other words the odds are that this 2022 weird growth is a one-off.

Where exceptional top line growth comes from