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SOUTH OCEAN HOLDINGS, along with many other medium sized manufacturers, had a tough 2009. However, the cabling and wiring company's most recent results reveal the market may be undervaluing its share. South Ocean's net asset value increased by 4,8% to 411,1c in the year to end-December 2009. The group's price averaged 150c/share last year, based on a McGregor BFA 200-day moving average for 2009. NAV, which measures the net worth of the company held in one share, exceeding its share price indicates the share may be a bargain buy.
South Ocean, which manufactures and supplies copper wire, could gain from a recovery in the construction and building industries.
OPPORTUNITIES
* South Ocean's fortunes turned in the second half of its past financial year, partly due to a recovery in the copper price. Most recently, an earthquake in one of the world's top copper producers - Chile - sent its price to US$7 600 , its second highest peak this year.
* The company ended the year with a net cash position of R6,2m, compared with an overdraft of R58,8m at year-end 2008. The cash will be used to increase South Ocean's buffer stock of copper and safeguard it from shortages in local copper supplies.
RISKS
* South Ocean only manufactures and distributes low-voltage cables, which prevents it from making significant gains in market share because its major clients who also have high and medium voltage requirements prefer to shop at a single supplier. The cost of setting up facilities to manufacture medium and high voltage cables is currently too prohibitive.
* The company controls just 10% to 15% of SA's copper wiring market and consequently its small share in the market is little able to influence pricing. Margins are currently under pressure due to aggressive pricing by its bigger competitors.
