David Kempton: my energy and engineering picks

Reflecting this long Easter weekend on the year to date, the strength of the markets has been surprising, but I feel no more relaxed now than I did back in January. 

Europe still looks ominous, as drastic remedial actions only seem to give temporary respite; China still makes noises about back-pedalling; and a Middle East debacle with Israel acting against Iran now seems only to be suspended until after the US election. 

I hope I am being pessimistic, but the Hezbollah-type terrorism reprisals that could follow such action would make the Arab Spring look like a minor event in comparison. 

Meanwhile, I remain fairly fully invested, and continue to keep my cash in dollars, a currency that I feel looks significantly the best option with so much uncertainty ahead.

Energy industry

Last week I gave a paper at a climate change conference to an excellent association, founded from a Duke of Edinburgh initiative, on my specialist subject of deep geothermal energy. While I listened to the other speakers, I remained as confused as ever and even more concerned about the nuclear option. 

Following the withdrawal of the Germans, RWE and E.On, who have had the rug pulled out from under them at home, we depend entirely on EDF and hence at the whim of a new and unknown (left wing?) French government, with our own Centrica (CNA.L) a secondary player and AMEC (AMEC.L) a minor sub-contractor. If that fails we'll have to rely on Gazprom.

Although shale gas is interesting, the jury’s still out on its environmental safety. Nonetheless, it remains a potentially useful source. 

Oil services picks

Weir (WEIR.L) shares lost 25% last month, probably an irrational reaction to concerns about sales of their fracking equipment, which is a minor part of group revenues, and the company continues strong growth elsewhere. It looks good value at this level, and I was encouraged last week talking to an expert on the company who had just bought some stock. 

Then there’s Fenner (FENR.L), one of my biggest holdings, still a 'buy' with their global manufacture of leading brands for the resources and processing industries of the world. With Europe only 15% of revenue, the company remains ideally placed to benefit from global growth.

Although remaining a big fan of our world-class engineering companies, the majors have had a good year, and valuations now look up with events. However, some in the second division seem overlooked, and remain very attractive.

Engineering acquisitions ahead?

I do think the major players in the emerging nations will come hunting, as we have seen in our car industry to such impressive effect. I recently saw an interesting world map illustrating where the world’s dollar billionaires live. India has 48, China/Hong Kong 133, the UK 37.

But ours are mainly landed gentry, financiers, services and industrialists manufacturing in Asia, while theirs are buying up hard assets round the developed world. Many of our quality manufacturers offer such excellent value and must be targets.