Reticence over likely Hirepool float value

MICHAEL FOREMAN AND RICHARD MEADOWS
Last updated 05:00 17/06/2014

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The pricing of Hirepool's initial public offer has met with a wall of silence from brokers and fund managers, but privately some expect the shares to list at the lower end of the price range.

The equipment-hire company expects to begin trading on the New Zealand and Australian sharemarkets next month, after filing its prospectus yesterday.

None of the country's major broker firms were available or willing to comment on the indicative price range of $1.10 to $1.50 a share, which would value the company at between $366 million and $425m.

Analysts and brokers, including those in the Government's partial privatisation of power companies in the past year, are usually happy to discuss such matters.

James Lee, head of institutional equities at First NZ Capital, said the offer price range was "very broad" but declined to comment on whether it represented good value for investors.

"However, you could say it's a sign of strength in the New Zealand [equity] market that Hirepool is going ahead with the IPO."

Fund managers were similarly reluctant to comment, and are understood to be cautious of rocking the boat in a year with several attractive new floats downstream.

Hirepool shares will be sold to institutions and retail investors through a broker firm offer, but there will be no public pool.

The final pricing will be determined by a bookbuild on June 24.

While some overseas investors and index-tracking funds are expected to buy in, general market sentiment is that the final price will be at the lower end of the range.

Hirepool's main weaknesses are low barriers to entry, its capital-intensive business model and other structural problems with the industry. Upsides include the potential for capitalising on the Canterbury rebuild.

The company intends to raise $175m to $262m of capital, which will be used to pay down debt, buy shares in majority-owned subsidiary Bligh Finance, and allow some long-term existing shareholders to sell down stock.

Hirepool is majority-owned by Sydney-based private equity firm Next Capital and its co-investor Macquarie Group.

Next acquired Hirepool in 2006 in a $172m deal, and in 2012 the company bought competitor Hirequip when it went into receivership owing banks $117m.

Next and its co-investors will own between 20 per cent and 35 per cent of the company's shares after the float, according to Hirepool.

Hirepool chief executive Brian Stephen said the equipment-hire market in New Zealand was highly fragmented and most of Hirepool's competitors were one-to-four-branch operations.

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The merger of Hirepool and Hirequip last year made Hirepool the country's largest equipment-hire company, with 58 branches.

Stephen said the company was now positioned to capitalise on growth in the economy and the increase in major infrastructure and construction projects.

"While our underling revenue is aligned to GDP, project work provides the cream," he said.

Hirepool's operating profit this financial year was projected to be $46m, increasing to $60m next year, according to its prospectus.

- Stuff

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