PSI profits soar 86% in second quarter on the back of inflation

Rising prices were decisive for the good second quarter results of Portuguese listed companies. Inflation is putting pressure on household budgets, threatens to lead the global economy into recession and, therefore, also restricts corporate activity. However, in the second quarter, the effect on the PSI companies’ accounts was quite positive, especially in the companies most exposed to the commodity prices’ evolution.

A trend that boosted the debate in public opinion and among politicians about imposing excessive profit taxes (windfall tax), as is being implemented in several European countries, especially on oil companies.

The overall figures leave few doubts about the good results of the largest Portuguese listed companies, and the positive dynamic is visible in a series of indicators, from revenues to profits, including margins. This is a sign that the companies are managing to pass the increase in prices on to customers and that they have a lower exposure to the Portuguese economy, which contracted in the second quarter compared to the previous three months.

Starting from the top of the income statement, where the effect of high inflation is more obvious, revenues increased 49% to €23.512 million. This data does not include the figures for Mota-Engil and Greenvolt, which only release results in September, as the construction company does not publish quarterly data and the renewable energy company did not announce results in the second quarter of last year (it was not yet listed).

Rising prices have a direct impact on revenues, but also affect costs and volumes sold, so they may represent a threat to the companies’ operating earnings. The 13 PSI companies that have already published results reported an EBITDA of €4.656 million between April and July. This is by far the highest figure in over three years (ECO has data collected since the first quarter of 2019) and represents a 59% year-on-year growth. This indicator, in the previous four quarters, showed double-digit year-on-year growth rates, but always below 30%.

With EBITDA growing well above revenues, the margin of Portuguese listed companies jumped in the second quarter. After a 10-year low recorded in the first quarter (14.8%), the EBITDA margin of PSI companies soared to 19.8%, which represents the highest level since the fourth quarter of 2020 (21.9%). Compared to the second quarter of 2021, the EBITDA margin increased by 1.4 percentage points, and is currently in line with that recorded before the pandemic.

In addition to the higher operating results, the companies also benefited from the positive evolution of other indicators (financial results, taxes, etc.), since in the last item of the income statement the jump was even greater. The profits of the 13 PSI listed companies reached €1.455 million between April and June, which represents an increase of 86% compared to the second quarter of 2021.

This is the highest value and variation since 2019 (at least), continuing a series of seven consecutive quarters of sharp rises in the profits of Portuguese listed companies. After falls in the first three quarters of 2020, reflecting the pandemic, the profits of the largest Portuguese listed companies have always recorded pronounced year-on-year increases. The rise of 20.5% in the first quarter of this year was even the lowest in this period.

This strong rise in profits in Portugal compares positively with what is happening in Europe, also justifying why the PSI accumulates an appreciation of around 10% in 2022, while the Stoxx600 suffers heavy losses. At the start of the second quarter earning season, analysts pointed to a 23.1% increase in profits for the 600 listed companies that make up this pan-European index. Excluding energy, the forecasts point to a 4% increase. In Spain, according to CincoDias calculations, the profits of IBEX companies increased by 7.4%.

With the global economy slowing down sharply, analysts expect a deterioration of results in the coming quarters, admitting that profits could fall by 2023 if the recession scenario is confirmed.

Energy in the lead

The improvement in results was common to (almost) all PSI companies. BCP registered a loss in the second quarter, penalised by losses with credits in foreign currency in its Polish subsidiary. The remaining 12 PSI companies managed to achieve positive variations in revenues, EBITDA and profits.

Although the rise was generalised, it was the energy sector’s listed companies that gave the greatest boost to PSI profits. EDP, Galp Energia and EDP Renováveis obtained joint profits of €846 million, more than doubling the figures for the same period of the previous year. Alone, they represent 58% of the profits of the listed companies in the index, well above their weight of 36% in the PSI. Looking at the EBITDA, the weight is even greater, reaching 67%.

Regarding revenues and EBITDA, these companies also achieved expressive increases in the second quarter, a period marked by a strong increase in energy prices (oil, natural gas and electricity) due to the impact of the war in Ukraine.

After EDP, Galp and EDP Renováveis, two more companies reached profits above €100 million in the second quarter. Jerónimo Martins and Navigator, two companies that obtain a considerable share of revenues outside Portugal, also recorded expressive increases in profits. The five companies with the highest profits reported net results of €1.13 billion, which represents 78% of the total an almost double the amount registered in the same period of the previous year.