Wolfe Research has pinpointed engineering and construction (E&C) stocks as prime beneficiaries of the accelerating shift towards clean energy and rising electricity demand, according to a note published this week. The analysts argue that utilities and data centre operators are driving a structural increase in power consumption, creating a multi-year tailwind for companies involved in grid upgrades, renewable installations, and conventional power plant maintenance.
On the London market, the FTSE 100 edged up 0.3% to 8,215.6 points on Wednesday, while the FTSE 250 gained 0.5% to 20,944.2. Infrastructure and construction names were among the leaders. Shares in Balfour Beatty rose 1.8%, and Kier Group added 2.1%, reflecting optimism around public and private sector capital projects. The broader support services sector also advanced, with Renew Holdings climbing 1.5%.
The Wolfe note comes as National Grid prepares to publish its latest network investment plan, with analysts expecting a significant uplift in spending on transmission capacity to connect offshore wind farms and accommodate electric vehicle charging. The UK's target to decarbonise the power grid by 2035 continues to drive contract awards for civil engineering firms, though labour shortages and supply chain costs remain headwinds.
For UK pension holders, the implications are twofold. Many default pension funds hold significant allocations to UK equities via FTSE All-Share trackers, where construction and engineering firms represent a small but cyclical component. Active fund managers have also increased exposure to infrastructure-linked stocks, betting on government commitments to net zero and energy security. However, Wolfe cautioned that valuations in the sector have risen, and investors should focus on companies with strong order books and pricing power.
Analysts at the US-based research firm did not provide specific price targets but flagged that E&C stocks offer a 'compelling risk-reward' compared to pure-play utilities, which face regulatory uncertainty. The sector's exposure to both traditional energy maintenance and renewable build-out provides diversification, though a slowdown in government spending or a recession could dampen demand for new projects.