2 ASX shares that could benefit from rising inflation

A piggy bank blasts off into the sky.A piggy bank blasts off into the sky.

The high level of inflation is getting global attention. It’s affecting ASX shares in various ways. But it might not be all bad for every business.

Some businesses have contracts with their clients or tenants where the revenue is linked to inflation. Therefore, a higher inflation rate could mean that revenue rises faster.

According to the Australian Financial Review, Deutsche Bank’s chief Australian economist, Phil O’Donaghoe, has predicted that Australian CPI inflation in the first quarter will be up 1.7% quarter on quarter and up 4.6% year on year.

Here are two businesses that could see income growth because of inflation:

Rural Funds Group (ASX: RFF)

Over the last six months, the Rural Funds share price has risen by close to 9%.

Rural Funds is an agricultural real estate investment trust (REIT) that owns a diversified portfolio across five sectors: cattle, almonds, cropping (sugar and cotton), vineyards, and macadamias.

How could the ASX share benefit from rising inflation?

Rural Funds says that growth in lease revenue is supported by annual indexation and market rent reviews. It noted that most lease revenue is sourced from listed and corporate food-producing businesses. Rural Funds said with its FY22 half-year result that, broadly, agricultural operators are currently experiencing “good seasons and commodity prices”.

In terms of inflation-linked contracts, 44% of lease income is based on CPI.

APA Group (ASX: APA)

Over the last six months, the APA share price has risen by around 34%.

APA is a large energy infrastructure business. Its market capitalisation is more than $13 billion, according to the ASX. It owns a large gas pipeline – it supplies around half of the country’s natural gas usage. APA also has investments in wind farms, solar farms, gas storage, gas processing, and gas power stations.

How could it benefit from rising inflation?

In the ASX share’s FY22 half-year result, the business said that it’s “favourably exposed to rising inflation with almost 100% of contracted revenues linked to inflation indices”.

APA claims that “gas will play a critical role in Australia’s energy system as an essential companion to renewables and a critical industrial energy source”.

In Australia, gas reportedly accounts for 27% of primary energy consumption and 21% of electricity generation. APA also said gas is typically around half the emissions intensity of coal.

The ASX share is looking to grow its electricity footprint with a strategic investment to acquire 100% of the Basslink senior secured debt at a discount to the face value. Basslink is the energy cable link between Tasmania and the mainland.

APA intends to work constructively with the receivers and managers, and Hydro Tasmania and the State of Tasmania, to “put Basslink on a stable footing and ultimately convert it into a regulated asset”.

The post 2 ASX shares that could benefit from rising inflation appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More reading

Motley Fool contributor Tristan Harrison owns RURALFUNDS STAPLED. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended APA Group and RURALFUNDS STAPLED. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/rV9HIWd

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s