consolidate is the go

National Hire consolidates

National Hire Group, the equipment-hire firm backed by media mogul Kerry Stokes, undertook a consolidation of its share register last week in a move that some analysts are saying could be a precursor to a further capital raising by the company.

The one-for-five consolidation of National Hire's shares means it now has about 120 million shares on issue, down from the close to 600 million shares previously on issue, pushing the company's share price through $1.70.

The consolidation could make the stock more attractive to institutional investors, by helping to reduce its volatility.

"If the share price is too low then you end up attracting a different shareholder base, so you end up with a lot of day traders," says Adam Smith Asset Management's managing director, Peter Mouatt, whose firm has held stock in National Hire and follows its progress.

While share consolidations make no difference to the fundamental valuation of a company, Mouatt says they do increase the attraction of a stock to institutions, making it easier for a company to raise additional funds with a rights issue.

"If you're going to have a rights issue, it's about the psychology. If you have a lot of day traders, with lots of [share price] volatility, it's easy . . . for the shares to slip below the issue price," Mouatt says.

National Hire's planned $115 million acquisition of AH Plant Hire from Nylex, which has been agreed upon subject to due diligence and approval by Nylex shareholders, is the most likely catalyst for a capital raising.

This is particularly prevalent in light of some analysts' concerns that National Hire has taken on too much debt through the AH Plant Hire deal.

In a recent research note, Citigroup Smith Barney cited this as the main drawback of the deal, with National Hire's gearing likely to jump to 77 per cent by June 2006, hindering any further expansionary moves.

As National Hire also bought Cat Rental Stores a year ago, Mouatt says he wouldn't be surprised if it did look to make further acquisitions, raising equity to bring its gearing back into line.