A rash of positive trading statements and the Bank of England’s signal that interest rates are now on the way down combined to bring new hope to investors in engineering last week.
Leading engineers saw some of the biggest increases in their share prices for more than 18 months. However, analysts said it would require ‘sustained rises’ for valuations to reach anything like their correct level.
Expectations of a rate cut saw the pound sink to a 12-month low against the deutschmark and prompted a wave of buying across the engineering sector.
The enthusiasm for a rate cut came as the Engineering Employers’ Federation (EEF) reported that the sector stands to lose more than 160,000 jobs over the next two years as the recession takes hold.
The EEF said the decision to lower base rates by a quarter of a point was ‘too little, too late’.
Analysts saw the reduction as a step in the right direction. Several suggested that with more cuts likely to come, the prospects for the engineering sector were ‘slightly brighter’.
Leading the way in the sector was McKechnie, which posted better than expected annual results and saw its shares end the week up 68.5p at 316.5p.
Weir Group also issued an upbeat trading statement, with shares reacting accordingly. As the stock surged past the 200p mark, however, analysts said this reflected Weir’s ‘vulnerability.’
Chief executive Sir Ron Garrick insisted that the company would not be sold at anything like its current share price.
‘If somebody came over the hill gunning for the Weir Group, we would be in the Guinness Book of Records for the premium we would demand,’ he said.
Weir’s UK pumps rival David Brown was taken over by US predator Textron recently in a cash bid, and analysts have named other US groups as potential bidders for Weir.
Other engineers to benefit from the improved market sentiment included BBA, up 38.5p at 324p, and Charles Baynes, up 13p at 56.5p.