Market wary of Donald after taking a Brexit hit

There is a clear link behind Donald Trump’s support in the US and the Brexit vote in Britain.

TPG boss Ben Gray. Artwork: Sturt Krygsman.

There is a clear link behind Donald Trump’s support in the US and the Brexit vote in Britain: dissatisfaction with the liberal elite and a loss of trust in politicians, according to Herbert Smith Freehills partner James Palmer.

The latest US opinion polls pointing to a Trump resurgence have spooked global financial markets.

In town to visit clients and his Australian partners, Palmer warns that Britain faces a day of reckoning when it puts its suggested exit plans to European leaders, who could well set their terms on the same emotional terms as Britain voted to leave the EU.

In terms of the immediate effect on the British economy, changes in quantitative easing from the central banks would have more impact than Brexit, he says.

The reaction is mixed, with anecdotal evidence pointing to a sharp fall in small-business borrowing since the Brexit vote, but with little evidence of a similar reaction in consumer lending.

The latter will depend on the terms of the withdrawal, which are a long way from being settled.

Palmer says the City of London will survive in the foreseeable future and any change in the rules around capital controls will more likely see US majors like JPMorgan run flows from their US or Asian posts rather than setting up shop in ­another European centre.

The anti-big-business sentiment in Britain has pushed the Prime Minister, Theresa May, to run a hard line on governance ­issues, ­including floating the idea of union representation on boards and mandatory votes on remuneration.

More disclosure on pay disparity is likely, but given many leading FTSE companies have most of their assets offshore, the concept of worker representation makes little sense, Palmer says. His ­advice to big companies is simply “to do what you say you will do”.

Palmer concedes the banks have got into trouble through a culture of short-termism, and there are institutional problems. But, he adds, most companies are highly ethical. Most of us are motivated by doing the right thing, he concludes.

Lion’s pay parity

This week, as Lion’s 6700 staff get their pay adjustments for the year, the company will use it as a chance to ensure there is no difference ­between pay based on gender.

Lion boss Stuart Irvine earlier this year found the company had a 3.2 per cent differential, which compares with the national average of 4.4 per cent, and decided he would fix it immediately.

This week’s adjustments will be followed up in hiring decisions and measured every three months to ensure the gap doesn’t re-emerge. It also meant some men got pay rises because it was found their female peers earned more than they did.

This is one step in a cultural change program Irvine is trying to institute with a more inclusive policy on culture and ethnic diversity.

Just 30 per cent of Irvine’s ­direct reports are women, but the Lion leadership team has 48 per cent women.

Part of the program is a strict policy on work flexibility that the company is trying to enforce after a recent survey showed 85 per cent of staff thought their boss supported flexibility but only 47 per cent thought the commitment applied to them.

CFO Stephanie Nixon is leading the way by working from home on Fridays, which shows such issues as inclusion and diversity are being taken seriously at management level.

Curbs on data flow

There are 500 restrictions in 176 different laws restricting the free flow of data from government ­according to the Productivity Commission.

The PC as expected has argued strongly for increased access to government and private sector-held data giving consumers control over their own information.

It notes Australia lags much of the world on the use of data.

PC boss Peter Harris backed David Murray’s call for increased access to credit reports known as comprehensive credit reports so outside operators would know that Jane Doe pays her mortgage on time even if she once missed her credit card repayment.

This positive and negative data can greatly increase access to ­credit and reduce a key in­efficiency in the existing banking system.

The CBA controls 23 per cent of all consumer credit information, which is a source of competitive advantage but not necessarily to the benefit of its ­customer base.

The PC says policy decision will be helped if ASIC’s and APRA’s operating models are changed so the word competition is added to their charters, which will open their eyes to a different way of looking at the world.

The draft concludes: “The incremental costs associated with more open data access and use — including possible impacts on individuals’ privacy and willingness to share data — are expected to be minimal, but they will exist.

“But greater use of Australia’s data can coexist with the management of these risks, including genuine safeguards and meaningful transparency to maintain community trust and confidence.”

TPG trims float price

TPG has scaled back the proposed float of Ingham’s Chicken and is now aiming at retaining 47 per cent of the company with an enterprise value of $1.6 billion and has priced it at 12 times forecast earnings, down from 13.5 to 15.5 times. Debt will be $418 million and the float price will be $3.15 a share, down from $3.45.

TPG acquired the business in 2013 for $880m and then raised $550m in a sale and leaseback deal. The move underlines the difficult market conditions but also represents a pragmatic approach by TPG’s Ben Gray, who in his last float for the firm is keen to push for strong aftermarket support for the stock. The Ingham’s float comes as it and fellow poultry producer Baiada are expanding their plant capacity outside Victoria in a way that will put more pressure on the smaller plants.

Baiada is building plants in Griffith and Tamworth with a cap­acity for processing 2.5 million chooks a week, up from 900,000 and 600,000 respectively.

Ingham’s processes about 3.6 million chooks a week and Baiada about 3.5 million out of a total market of 10 million.

The long-term growth in the market is around 4.5 per cent but, in recent times it has been more like 9 per cent.

While this is good news for everyone, with five players including Melbourne-based Turi Foods (Ionica) having less than 20 per cent between them, the expansion of the big two is potentially damaging for the smaller players.

Baiada and Ingham’s are expanding outside Victoria, which is perceived as being less friendly to business, with the Victorian Farmers Federation backing the small processors against the big two.

Ingham’s has plants just outside Adelaide and Brisbane that process about 1.4 million chooks a week, although their official cap­acity is two million birds a week.

The processor gets the birds out the door within 48 hours of collection and pays the farmer about 90c a bird for growing them for six weeks. The birds are owned by the processor from birth, so the farmer is getting paid for the cost of growing the animal.

The big are getting bigger and Ingham’s will have an enterprise value of about $1.8bn, which values Baiada at slightly less. The cost of new plants is increasing with the new scale demanded.

If the float proceeds as planned next week, management will own about 5 per cent of the stock, with chief Mick McMahon getting a $4m bonus plus two million shares from majority owner TPG.