Sector movers: Hunting and IMI gain on US shale oil, truck orders
(ShareCast News) - Oil field service names were at the front of gains on Wednesday following supportive comments from management at Hunting and on the back of the latest monthly report out of OPEC.
London-listed Hunting posted stronger-than-expected first quarter revenues, reporting that US shale drilling activity was "strong" during the period.
The outfit's insight into drilling activity in the States chimed perfectly with OPEC's market report for April, in which the cartel bumped up its forecast for US oil supply growth in 2017 by 200,000 barrels a day to a 540,000 b/d increase when compared to 2016's level.
Early gains for crude futures after the American Petroleum Institute revealed an unexpected 1.3m barrel drop in US oil inventories during the latest week likely also bolstered sentiment, although by the end of the day the advance had largely petered out.
Acting as a backdrop, analysts continued to weigh in with positive short-term forecasts for the price of oil.
Wednesday was HSBC's turn, with the investment bank's analysts telling clients to expect an average price for Brent oil this year of $60 a barrel (rising to $65 by the end of the year) and $75 dollars in 2018.
HSBC added, "USD60/b looks achievable to us in the near term if there are the falls in global stocks that we expect."
Boosting the aerospace sector higher, engineer Meggitt got an upgrade from Bank of America-Merrill Lynch to 'Buy' from 'Neutral', who at the same time lifted the price target to 530p from 490p.
The bank said it sees an attractive cash improvement story through to 2020, driven by gradual margin increases and stabilisation in fixed/tangible investment.
Merrill said it sees around £304m of free cash flow to equity in 2020, which would correspond to an 8.7% free cash flow yield, which it reckons is attractive versus the civil aerospace peer group average of 7% in 2020.
IMI led Industrial Engineers higher as Credit Suisse reiterated an 'Outperform' recommendation on the shares of the FTSE 250-listed tinkerer.
Citing the results from its proprietary survey of industrial distributors and a 30% rebound is US truck orders in the first quarter, the Swiss broker said: "We continue to view IMI as an attractive way to play a short-cycle recovery and believe the market underestimates the scope for margin expansion as volumes recover.
"We see Precision Engineering as the most likely near-term source of earnings upgrades as the division benefits from end markets tracking better than expected (eg US Truck orders), a low starting point in terms of factory utilisation (55%), and also a positive margin mix from Industrial Automation."
Selling pressure meanwhile was concentrated on Mining as industrial metals prices fell across the board, with losses for iron futures particularly steep - hurting the likes of Vedanta and Ferrexpo.
Traders referenced high levels of stocks in China even as local miners ramped up their own production.
In the case of the 'red metal', copper, analysts at SP Angel called attention to news that Tongling Nonferrous Metals, the biggest refined copper producer in China, is planning to reduce its output from 1.30mt in 2016 to 1.21mt this year.
Somewhat unusually, shares in the main precious metals miners were also lower despite a tick higher for gold futures.