Consolidation Plans Fuel Emeco Rebound

Emeco Holdings shares rose nicely yesterday after the company’s notice of annual meeting revealed a plan for a one for 10 consolidation of shares to improve their marketability.

Unlike other companies that have consolidated their shares such as Network Ten (collapsed) and Slater and Gordon (as part of a rescue plan by US vulture investors), Emeco’s fortunes have improved after years of cutting costs and people and battening down to ride out the resources sector downturn.

Now that has passed and demand for mining services and heavy equipment has been rising for 18 months, the company’s profits are on the improve

In the year to June 30, it returned to profit for the first time since 2012-13 with earnings of $83.2 million.

“The company expects to see additional growth in revenue and earnings in FY19, drive by further increases in utilisation and rates, additional maintenance services, a full year contribution from Force and the completion of the acquisition of Matilda,” CEO Ian Testrow wrote in the 2017-18 annual report which was also issued yesterday.

But investors had factored that into their thinking – it was the share consolidation proposal that grabbed their attention.

The Company currently has a large number of Shares on issue (3,178,858,997). “The Consolidation will result in a more appropriate capital structure for the Company and a Share price which is more appealing to a wider range of investors,” directors said in the Notice of Meeting for the AGM on November 15.

That number will rise to just over 3.232 billion (before the consolidation) with shareholders also being asked at the meeting to approve the issue of shares to the CEO under incentive plans.

Shares to be issued to him will be included in the issued capital figure for the consolidation. It means that once done, Emeco will have 323,210,900 shares on issue. That will apply from November 28.

Logically the shares should trade around 10 times the level on November 15. If it applied yesterday the figure would be around $3.45 or so. The shares rose 4.6% to 34.5 cents.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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