Investing in engineers over the past six months or so has proved very profitable indeed. A brighter economic outlook, earnings growth and better margins justified a re-rating that has driven the industrials sector up by more than a fifth since October, outperforming the FTSE All-Share by 10 per cent. And even with a fresh storm brewing in Europe, uncertain growth elsewhere and now a double-dip recession in the UK, we would not bail out just yet.
Many industrial names enjoyed a record year in 2011 as demand returned and recession-time cost-cutting fed through to the bottom line. And, judging by the latest batch of first-quarter numbers, that momentum has carried through to 2012.
First-quarter figures from
Lively end markets are generating much of the optimism. Supplying valves, seals and services to the mining and oil & gas industries is still big business. In Bodycote's case, there's the high growth commercial aerospace market and North American motor industry, too. Being in the right place is crucial. Good news, then, that growth in China and other emerging markets is offsetting weakness in Europe. There’s upside potential in the US, too.
There are headwinds, of course. Currency risk and rising costs matter, but the evolution of the macro-economic backdrop remains the biggest potential banana skin. Scott Cagehin, an analyst at Numis Securities, has a cool head, predicting a "reasonably benign," outlook with pockets of growth offsetting areas of weakness.