Super profits rise under cloak of inflation

afr.com:

A former boss of Australia’s competition regulator says big ASX-listed companies with too much market power have “taken advantage” of the sharp rise in inflation to aggressively lift prices which has led to a supercharging of profits.

Rod Sims, who was chairman of the Australian Competition and Consumer Commission from 2011 to 2022, said many Australian industries, including supermarkets and aviation, were too concentrated and that had shown up in large increases in profits and margins as inflation climbed.

“I do think when you are in a position of market power it gives you an opportunity to take more advantage of this situation. I think they probably have taken advantage,” Mr Sims said.

“No company, despite what they say, wants more competition.”

The spotlight is on companies such as Qantas, Woolworths, the Commonwealth Bank and insurers such as IAG, which owns the NRMA and CGU brands, as households battle cost-of-living pressures.

Qantas has been in the eye of the storm over super-profits.  

Is there some revenge still available for those wanting to become a shareholder, in an “if you can’t beat them, join them” approach?

Daniel Moore, portfolio manager with $4.5 billion fund manager IML, said larger companies with strong brands had been able to lift margins. “Pricing power has definitely been a big differentiator during this reporting season,” he said.

He said the insurance sector was likely to be able to keep repeating strong profit growth in the next two years. Premiums for Australian home insurance were rising by more than 20 per cent and car cover by more than 15 per cent, IAG’s chief executive Nick Hawkins said on August 21.

Woolworths, which runs 1000 supermarkets, generated a 19.1 per cent rise in earnings