Inghams provided a further trading update about its second-half of FY22e. The results will be “seriously” impacted by Omicron, floods and input cost pressures. We forecast FY22e EBITDA of $135 million (pre AASB-16). 2H22e EBITDA is down 68%. While FY22e is tough, there should be a rebound in FY23e as earnings normalise. However, our EBITDA does not recover to pre COVID-19 levels because higher transport and feed costs could weigh on earnings for longer.

Our feedback from a range of contacts is that Christmas 2021 trading was solid, particularly given the high base from 2020. The strongest feedback comes from the furniture sector. Whitegoods were strong and supermarkets had a late rush in sales. While a good festive season, the debate is going to shift quickly to the impact that COVID-19 has had on January 2022 trading. Sales could be down 10%-20% for the month leading to 3%-5% full year EPS risk in our view.

Australian retail price inflation has been low for a long time. However, input and supply chain costs have increased substantially in the past year. What if we had 5% inflation in both food and non-food in 2022? This is a hypothetical question to raise the debate about the implications of higher retail prices. High price inflation is likely to boost retail earnings in the first 12 months. If we have 5% price inflation, the upside to earnings is 6%-12%.