* 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 (Reuters) - 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 wrote.
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. [ID:nLDE61906O]
"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 analysts wrote.
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.