* Consolidation driven by expansion into emerging markets
* Nexans to lead acquisition spree
* Cable demand driven by North East Asia
By Greg Roumeliotis, European Infrastructure Correspondent
AMSTERDAM, March 25 More consolidation is
expected in the cable making industry as firms seek to expand
further in emerging markets and exploit problems of competitors
in the downturn, HSBC analysts wrote in a note on Thursday.
The traditional fragmentation of the cable market, which is
expected to reach a value of $176 billion in 2011, is under
strain as manufacturers are looking to boost their negotiating
power both with raw material suppliers and end users of cables.
"The sheer number of players -- over 1,000 cable-making
companies worldwide -- and the widely-acknowledged geographical
dispersion cry out for some sector streamlining," HSBC analysts
Nexans (NEXS.PA), the world's largest cable maker, has said
it is planning new acquisitions, such as in the energy
infrastructure sector outside Europe, as its reduced borrowings
give it fire power to pursue international growth plans.
"We have identified two possible directions this might take:
strengthening its hand in emerging countries, with a focus on
industrial partnerships like its joint ventures in India and
Qatar, and targeted acquisitions in niche markets," HSBC said.
Italy's Prysmian (PRY.MI), the second largest player with 53
plants in 23 countries, is constrained in its acquisition
capabilities by its balance sheet, HSBC said, but added that the
company's strategy is to acquire small players abroad.
General Cable (BGC.N), the world's third-largest operator in
the cable and wire industry, has realised the huge potential of
developing economies, expanding its presence in India
and China, the analysts wrote.
The highest demand for cable is in the North East Asia region
including China, which accounts for 35 percent of total
consumption. Demand there is driven by major electrification
programmes to extend energy networks, HSBC said.
Western Europe and North America, which account for a fifth
of demand each, are looking for cables to replace ageing lines
and to interconnect electricity networks, while the Middle
East's and North Africa's investment plans of more than $60
billion also make it a major market, the analysts wrote.
HSBC considers both Nexans and Prysmian to be undervalued, a
situation it expects to be rectified over the coming quarters,
as the two firms emerge strengthened from the downturn on the
back of their industrial know-how, geographical diversity and
key positions in certain niches.
Dutch Draka DRAK.AS, a niche player in the cable industry
with a focus on telecommunications, is still going through a
restructuring process that will stunt its cash generation, the
Emerging market players El Sewedy (SWDY.CA), Havells
(HVEL.BO), Finolex (FNXC.BO) and Saudi Cable Company 2110.SE
and those focused on a single business, such as Leoni
(LEOGn.DE), are fairly valued with little prospect of upside
surprises, the analysts wrote.