The Distillery: Fair trade

Jotters defend the ASX’s decision to let McMillan Shakespeare resume trading, saying the market was as informed as it could be about potential political contingencies.

Salary packaging company McMillan Shakespeare was torn asunder as Labor’s planned changes to fringe benefits for motor vehicles hit home. Should they have been allowed to commence trading again given that the changes will be thrown out the window if Tony Abbott becomes the next prime minister?

Also in this morning’s mixed shot from The Distillery, Orica boss Ian Smith raises the stakes and the country’s construction industry continues to struggle with companies falling left, right and centre.

Firstly, The Australian Financial Review’s Chanticleer columnist Tony Boyd addresses the fundamental question of whether it was correct for the Australian Securities Exchange to push McMillan Shakespeare back into trading, knowing that a bloodbath was all but certain.

“It was right for the ASX to refuse the request, as ASX Guidance Note 16 says that interruptions to trading should be kept to a minimum and a trading halt or a voluntary suspension should only be permitted: where there is a material risk that trading in a particular security might occur while the market as a whole is not reasonably informed; or where it is needed to correct or prevent a false or disorderly market. Once McMillan Shakespeare issued a statement to the market on Wednesday evening detailing the potential impact on its profits of the FBT changes, the market was as informed as it could be. The ASX has come under harsh criticism for allowing stocks to be suspended for weeks and months.”

Perhaps the old adage that great minds think alike is the best to describe the beat that Business Spectator’s Stephen Bartholomeusz uses on this issue.

“The market is as informed as it could be in the circumstances. It knows how material the group remuneration services revenue derived from salary-packaged novated leases is and it knows that if Labor wins the election and enacts its changes to the law McMillan Shakespeare will be materially and adversely affected. Today’s share price plunge provides an indication of the extent of the anticipated impact. It is true that the market won’t know until after the election whether Labor will be in government and in a position to get the legislation passed in both houses. It does know that if the Coalition wins it has promised not to proceed with the changes so there is effectively a binary outcome for McMillan Shakespeare shareholders.”

Fairfax’s Malcolm Maiden reports that Macquarie is starting to be loaded up with bullish expectations.

“Macquarie is not within a country kilometre of the profits it was booking before the global crisis, and key profit catalysts including Macquarie’s famous listed infrastructure funds management manufacturing machine have wound down. There is however room for what Macquarie calls its ‘market facing’ operations to significantly boost their profit contribution if the market recovery continues, and what is still a 25 per cent price gain for Macquarie since mid-April is partially built on the assumption that it is under way.”

The Australian’s John Durie notes the importance of assurances from Orica boss Ian Smith that last week’s profit downgrade was due to a series of one-off events and not because support for the company’s Minova business is decaying.

“They are fighting words and indeed brave ones, because as Smith acknowledged, if there is more downside the market will demand blood – in particular, his blood. A range of external things could go wrong again, which will make his stated confidence look misplaced, and in the process raise questions about his judgment, even if the issues are easily explained. In some respects, a better response would have been to say nothing, ensure that his end-of-year numbers came out in line with his latest estimates, and let the numbers do the talking.”

And in other concerning news, Fairfax’s Adele Ferguson reports on just how much trouble the construction industry is in with almost 100 companies going down between June 1 and July 18.

“The trend appears to be worsening in New South Wales, with 18 construction-related companies failing in June 2012, compared with 24 in June 2013 and 21 collapsing in the first 18 days of July 2013. These included such companies as JBP Construction, Paint Rite Australia, Quick Home Australia and Kona Constructions and Maintenance. It supports the general economic statistics, which showed that in the March quarter, gross domestic product figures seasonally adjusted construction activity fell 2 per cent. To put it into perspective, construction contributes 14 per cent of Australia’s economic output.”

Elsewhere, The Australian’s economics correspondent Adam Creighton doesn’t suggest that climate change is crap, as Opposition Leader Tony Abbott once did – Creighton’s words, not The Distillery – but “the modelling used to justify ‘climate action’ typically is”.

And finally, The Australian’s Richard Gluyas looks at the way the rise of Seek, REA Group and Carsales have contributed to the decline of Fairfax Media, as well as the fattening margins the big three are commanding.

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