Analysts tip engineering upturn

Big falls in the value of telecom and internet-related stocks revitalised interest in the engineering sector last week. Analysts believe that with the sector due for a re-rating, engineering shares represent an exceptional buying opportunity. Some aerospace and defence-related stocks have surged in recent weeks as the conflict in Kosovo continues, prompted by speculation that […]

Big falls in the value of telecom and internet-related stocks revitalised interest in the engineering sector last week.

Analysts believe that with the sector due for a re-rating, engineering shares represent an exceptional buying opportunity.

Some aerospace and defence-related stocks have surged in recent weeks as the conflict in Kosovo continues, prompted by speculation that the war would boost suppliers to the military.

Clive Forestier-Walker and Peter Coulter of CCF Charterhouse said a protracted campaign, particularly if it involved ground forces, would generate large spares and repair revenues. But they added that large stocks of most missiles and ammunition made a dividend unlikely in the short term.

Rolls-Royce, Cobham and Alvis, which are benefiting from new programmes moving into the production phase, look likeliest to derive benefit from a protracted conflict, analysts said.

Across the whole of the sector, weak trading conditions in the second half of last year are likely to continue well into this year, according to analysts at Albert E Sharp Securities. Companies with exposure to the aerospace sector, such as TI, BBA and Meggitt, would look healthiest, they added.

One top-rated City analyst said the extent to which engineering stocks were recovering was highlighted by last week’s share price tumbles among the FTSE 100 index – a lapse of confidence that did not spread down to the FTSE 250 companies.

`The extent to which the FTSE 100 index is overvalued was shown by how much it fell. The 250 index, in which many engineering stocks are listed, didn’t fall anything like as far.’

Sector analysts see this as further evidence that engineering share prices are on an upward trend.