2023 promises to be a watershed for assessing the accountability of Italian mid&small caps. After a 2022 full of positive surprises also linked to extraordinary factors, the current year, not surprisingly defined by many players as an exercise in transition, looks like a test bench capable of delivering some verdicts, above all on the ability to generation of margins and maintenance of volumes of many listed industrial companies. In the meantime, however, the long wave of the crisis of the American banks and Credit Suisse seems only to touch Italian SMEs, which in the last month have lost less value on the stock market both compared to large caps and compared to the main European stocks belonging to the same segment .
After a year in which fears of various kinds related to the deterioration of the macroeconomic scenario were chased, the 2022 reporting season, which has just ended, has delivered an image of apparent solidity of the Italian mid&small caps. But the balance is already in danger of breaking. The effect linked to the variables relating to “tax benefits, invoice discounts and energy credits which inflated the performance of the year, will probably end in 2023 – he reasons Anthony Amendolaportfolio manager of AcomeA sgr -, with repercussions on the top line and a more contained growth. Revenue will be mainly driven by the price and offer mix components, to the detriment of volume growth». Despite the excellent results of the last quarter of last year, in the first months of the year “many industrial stocks see a drop in new orders and demand”.
More structured guidance
Management of working capital and inventories, emphasis on the product mix are the watchwords for governing operations, now being challenged by the first signs of a slowdown in demand linked to the rise in inflation. Also for this reason, many companies have preferred to wait for the first quarter accounts to provide more structured guidance on the current year. On the other hand, continues Amendola, «shortages and raw material costs are recovering, but not decreasing; the price lists have already been increased from last year and the reversal of costs is becoming increasingly difficult for some businesses». For this reason, “a downward pressure on margins is expected”. Another element of attention is considered cash generation, “impacted by the need to increase inventories to meet component shortages – concludes the manager -, but which in a scenario of falling demand could have an inflationary effect”.
Positive European comparison
However, as mentioned, the market is not discounting the expected slowdown. And this despite the storm that has hit the price lists in recent weeks. The prices of the Italian stock market as of March 17, as confirmed by the Intermonte analysis, have lost 7.9 percent in the last month, but are still up by 5.6% on an annual basis. The FTSE Italy Mid-Caps index in particular has outperformed the main index by 1.1% in the last month (-6.9%), while the FTSE Italy Small Caps has recorded a better performance of 5.2 % compared to the market (-2.7 per cent); however, both still show a gap compared to the values at the beginning of the year. Italian SMEs also win the European comparison: the MSCI Europe Small Caps index fell by 7.4 per cent in the last month, slightly underperforming Italian mid-caps.
Portfolio rotation
“In the last few weeks,” he explains Andrea Randonehead of mid-small cap di Intermonte – there was a worrying liquidity crisis that spread rapidly from a number of US regional banks to the forced bailout of Credit Suisse. The clear signs of a macro slowdown should lead to a change in central bank policies, with a consequent portfolio rotation towards stocks such as utilities and less cyclical growth stocks. In Italy, most of the names in the latter category belong to the mid-cap segment, which we hope will regain the attention of investors”.