WBHO may consider Sea Kay bid

Johannesburg - Construction firm Wilson Bayly Holmes-Ovcon (WBHO) couldn't discount speculation it was considering taking over troubled low-cost housing builder Sea Kay Holdings.

"It's too early to say," said chairperson Mike Wylie when asked by Fin24.com about the prospect of a bid for Sea Kay.

Imara SP Reid analyst Stephen Meintjes said Sea Kay had had problems with public sector debtors, and the company could be "a good buy" for WBHO. "WBHO would be buying a good team with nice niches, but it all depends on Sea Kay's balance sheet," he said.

In the year to end-June, Sea Kay's balance sheet showed mounting liabilities totalling R612.55m. These included R29m loans payable and current liabilities of R531m.

Assets totalled R939m, but its current ratio - which measures the firm's ability to meet short-term obligations (done by dividing current assets over current liabilities) - was 1.15.

This shows the firm's liquidity was under the generally accepted ratio of 2. The higher the ratio, the more liquid a firm is considered.

"Sea Kay is trading under cautionary and I've heard one of the big construction companies is looking at them to take them out," said another analyst who asked to remain anonymous. "From what I understand, Wilson Bayly is looking.

The perfect match?

"Following the Fifa 2010 World Cup, government work in the low-cost housing sector should go ahead at full steam and Sea Kay is slap bang in the middle of it," said the unnamed analyst.

"WBHO can pay for Sea Kay out of its own back pocket, and it doesn't even have to get the resources to move into low-cost housing. WBHO already plays in the normal housing building sector - it shows how perfect this match is," he said.

Sea Kay advised shareholders on December 7 that it had entered into discussions which, if successful, could influence its share price.

This followed media reports of Sea Kay's troubled financial situation, when it was edging towards liquidation after government failed to pay it for contract work.

However, ClucasGray Investment Management analyst Brendon Hubbard said speculation was unfounded because Sea Kay wouldn't be in line with WBHO's business model. "I don't see any of the big boys buying Sea Kay."

Having recently met with WBHO chief financial officer John Abbott, Hubbard thought the firm was interested in securing water-related projects in 2010.

It had also identified road maintenance work similar to that of Raubex to win a slice of the R25bn phase two construction of the Gauteng Freeway Improvement Project, he said.

"It is also looking at road-building in Australia," said Hubbard. In 2009, Wylie said WBHO was looking at a small acquisition in Australia.

- Fin24.com