March 2026

Canary in the Coalmine - This time it’s different

The stock market reaction to the oil price spike since the start of the Iranian war looks muted given the risk of global stagflation. However, we have been surprised by the number of companies we have met or heard from in the past couple of weeks who are already feeling the effects. Despite limited direct Middle East exposure, many European companies are already flagging demand pauses, rising input costs and are putting through price increases to offset headwinds. There are a number of possible reasons why this may have happened so quickly.

Timing. Many companies are either reporting year-end results with cautious 2026 guidance, or starting pre-close calls for 1Q26 highlighting headwinds. Seasonality also plays a role – fertiliser, heating and travel demand patterns can magnify the effects. We expect food prices to be impacted quickly as fertiliser costs rise at the start of the planting season.

Faster transmission mechanisms. Since the 2022 Russia/Ukraine energy spike, companies have become more adept at hedging exposures and have implemented price escalation clauses in customer contracts, causing more immediate pass-through than in the past. As usual, companies with stronger moats are passing on prices more effectively.

Consumer impact. The spike in borrowing costs, petrol prices and expected energy/food price increases has been well publicised. Many consumers have muscle memory from the recent inflation spike. The largest impact is felt in net energy-importing countries and at the lower end of the consumption spectrum, where absolute increases take a larger share of disposable income.

A broad range of companies have commented on the expected impact:

• Construction: UK housebuilders Bellway and Berkeley Group cautioning over margins given likely increases in construction costs.

• Industrials: VAT Group (vacuum valves) warning of supply chain disruptions and late component deliveries, resulting in short-term order adjustments.

• Testing & Inspection: Bureau Veritas and SGS flagging a pause in oil trading activities and Middle East refinery/gas field inspections.

• Chemicals: Multiple companies pushing through substantial price increases to offset higher raw material/energy costs, but acceptance and elasticity remain key unknowns.

  IT Consulting: A Scandinavian IT consultancy reporting clients pressing pause on discretionary work. We are hearing the same from non-listed consultants across various end markets.

• Food Packaging: A Scandinavian listed company flagging declining food service demand alongside force majeure price increases from suppliers.

• Automotive Services: A Dutch listed holding company expecting lower miles driven in reaction to petrol price increases.
  

We expect a plethora of profit downgrades in the coming weeks. The transmission from price shock to real economy is happening faster than in the past – and so we are (reluctantly) using the four most dangerous words in fund management in our canaries’ subtitle: “this time it’s different”.

Mid Cap of the Month - Vodafone

Sector backdrop – consolidation and AI hopes. European telecoms have outperformed over the past year on consolidation hopes. In France, Altice (SFR) is in disposal discussions with Iliad, Orange and Bouygues, with the expectation that French consolidation, if approved by the regulators, will be the precursor for similar moves in Sweden, Germany and Spain. The sector has also been perceived as an AI beneficiary, with AI seen as a tool to cut headcount, reduce churn and manage networks more efficiently.

Benefits overdone. We believe these tailwinds are more than reflected in share prices. Looking at past deals, cost savings typically accrue to the seller via the share price premium paid, with limited evidence of sustainable market repair post-consolidation. Benefits take years to materialise and come with regulatory concessions.

Meanwhile, the market has been quick to reward the sector for potential AI savings but slow to recognise that the recent spike in interest rate and inflation expectations presents incremental cost and capex headwinds for a sector that has historically struggled to pass on inflation given its long-duration, fixed-price revenue base.

Germany – pricing headwinds. Our sell thesis on Vodafone is multi-faceted. Germany, its most important market, has seen intense price competition over the past couple of years. We believe pricing normalisation will take longer than consensus expects given the duration of the back book, and we are more cautious on the magnitude of any recovery. The most likely consolidation scenario – Telefonica Deutschland buying 1&1 – would see Vodafone lose significant wholesale revenues and free cash flow.

UK – mixed picture. The mobile market is in better shape post the Vodafone/Three merger, but broadband remains highly competitive with challenges from independent full fibre networks (alt-nets) and resellers. We expect this competition to continue.

Vodacom (Africa) – under-researched risk. Sell-side coverage of the African subsidiary is limited. Whilst growth opportunities exist, we are concerned near term by intense South African price competition and meaningful exposure to diesel costs, which are spiking alongside oil.

Tower companies – structural pressure. Vodafone’s holdings in tower companies Vantage and Inwit have fallen sharply after their two largest customers (Telecom Italia and Fastweb) threatened not to renew contracts on expiry. We believe the tower model may be coming under pressure from operator consolidation changing the pricing dynamic and ultimately driving lower valuations.

🌟Starr's Rating

AngloThai, 22-24 Seymour Pl, London W1H 7NL

There is something special about the elevated Thai fusion restaurant AngloThai which makes it one of my favourites. Whilst fusion food is nothing new, Thai fusion is somewhat more unique (at least in London). The blend of British produce with Thai flavours is a nod to the chefs dual heritage. The execution is flawless, hence why it won its first Michelin star within few months of opening.

The ambience is relaxed and down to earth, nothing overly pretentious or stuffy. The restaurant offers a tasting menu only, which changes regularly. The dishes are elegantly presented and packed with flavour - think dishes such as crab & caviar on a coconut cracker and duck Gari curry. The flavours, presentation and overall vibe of the restaurant tick a lot of boxes for me. It is a truly standout option.

Take your: Date

StarrRating: ⭐⭐⭐⭐⭐⭐⭐⭐⭐ + (9.5/10)

Important Information

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