Sector movers: Construction and aerospace lead advance

4th Oct 2016 15:36

(ShareCast News) - Construction and industrial engineering stocks led the way higher, with shares in aerospace and defence close behind thanks to the favourable tailwind from the pound's depreciation. Activity in the UK construction sector bounced back in September, with Markit's purchasing managers' index for activity rising to 52.3 from 49.2 in the month before and after hitting a seven-year low in July.Also giving a boost to sentiment, analysts at Canaccord Genuity and Deutsche Bank cheered CALA Group's record fiscal year 2016 results published on 3 October."While the group has a higher average selling price than many of the volume housebuilders (reflecting its geographic mix and size of product), we nonetheless see it's trends as further positive reinforcement of trading conditions in the sector. Since Brexit, Cala reports it has seen a robust market," analysts at Deutsche Bank told clients.For its part, Canaccord pointed out the "noises" coming from the government suggesting the Autumn statement was likely to be positive in relation to its support for the house-building sector.On a more skeptical note, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted that given long lead times for construction projects it was unlikely that the funds earmarked by the Chancellor on the day before for building on public land would provide any support to GDP growth over coming quarters.In parallel, following meetings with the company and some top management analysts at Credit Suisse retained Weir Group as their 'top pick' among the capital goods names with exposure to resources."Weir is trading on 12.7x 2018E EV/EBITA, a 5% premium to UK peers. Our SOTP valuation is £18 but in a blue sky scenario where O&G EBIT recovers to the 2008-15 average our valuation would be £21," analyst at the Swiss broker said in a research note sent to clients.Lastly, aerospace names got a boost from the pound's drop during the session to a fresh 31-year low at 1.2735.UBS estimated that for every ten cent depreciation in the pound's value versus the US dollar Cobham, GKN and Meggitt should see the highest benefit.Top performing sectors so far todayConstruction & Materials 6,540.35 +3.18%Industrial Engineering 10,370.26 +3.08%Aerospace and Defence 4,677.03 +2.92%Industrial Metals & Mining 1,830.88 +2.88%Electronic & Electrical Equipment 5,293.67 +2.48%