I’m a little surpised at the extent of Connaughts (CNT, 11p) fall from grace, but not by its direction.

Founder and CEO Mark Tincknell sold a third of his holding at close to four pounds (375p) not so long ago.

He, or was it the brokers who placed the stock, claimed it was ‘to satisfy institutional demand’.

Just serves as a reminder to look at what directors are doing with their own money.

Close ‘STRONG negative view on Connaught with a 96% absolute and relative (to FTSE 250) return.

See our note of April 30th 2008 here

See also todays FT report of an FSA Inquiry into Connaught. Maybe they should start with a discussion with Tincknell.

( https://followthedirectors.co.uk/2008/04/30/connaught-directors-selling-vs-eaga-directors-buying/)

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The headline above features in todays FT (link to article).

The article quotes research from TrimTabs as follows:

‘Share sales by so-called company insiders are outstripping purchases so far this month by more than 22 times. TrimTabs, the investment research company, said insiders of S&P 500 listed companies have unloaded $2.6bn in shares in June, compared with purchases of just $120m.

“The smartest players in the US stock market – the top insiders who run public companies – are not betting their own money on an economic recovery,” said Charles Biderman, chief executive of TrimTabs.’

See articles discussing this on followthedirectors as follows:

June 6th ‘Despite Greenshoots Insider Sales Spike’

May 4th ‘Directors selling shares. Is the market expensive?’

I want to talk about share purchases made by BT Group plc (BT.A, 92.5p) Directors and PDMRs on June 1st, namely Ian Livingstone, Tony Chanmugan, Sally Davis, Rod Louwhoff, Gavin Patterson and Al-Noor Ramji, who between them bought over 1/2 million shares at 89p (source: London Stock Exchange)

Warning bells ring as soon as I see this number of directors buying shares all at the same time.

So a close look at the BT Group Annual report 2009 (May 13) reveals the reason as follows:

Page 58: ‘All executive directors and members of the Operating Committee will, immediately after payment, use their annual cash bonus for 2008/2009, after tax, to purcahse shares in the company’.

Page 60: ‘The CEO is required to build up a shareholding of 2x salary and the remaining directors 1.5x salary.’

Looking at the declared cash bonus for Livingstone of 343,000 pounds, netting of 40% tax, gives around 200,000 pounds. Livingstone bought 224,000 shares at 89p on June 1st.

We thoroughly support this requirement to purchase shares, as it aligns the Executive members of the Board and the Operating Committee with shoreholders, but it means that for ‘signals’ generated by directors dealings we need to look at activity by non execs.

Sir Michael Rake, the non executive Chairman, has been buying shares. He bought 12,000 at 166p in September, 20,000 at 127p in November, and 28,000 at 72p in March.

These purchases are relatively small, and have not (yet) been reinforced by activity by other non execs.

Further buying activity by other non execs would send a positive signal.

View on BT Group: Neutral (no signal from directors dealing activity).

See other comments by followthedirectors on BT Group here.

Take a look at this article on the Pragmatic Capitalist, which indicates that Insider sales in the US over the last two weeks outnumber buys by about 30:1: ‘Despite “greenshoots” insider sales spike’.

We observed significant share selling by directors in the UK in April: ‘Directors share sales outnumber buys- is the market expensive?’

We’ve found that non execs outperform execs by somewhere between 7% and 11% amongst the directors dealing transactions we have observed over the last 18 months. We are unsure as to whether this outperformance is a feature of bear markets, or will continue when share markets are rallying.

Our thesis when we started followthedirectors was that non execs would have a better ‘handle’ on both valuations and the competitive and economic environment due to their involvement in  activities outside the firm on whose board they sit.

A few transactions over the past week where only non execs have been buying shares are worth noting as follows:

Vodafone (VOD, 116p)

announced that on May 22nd that Sir John Bond, the group Chairman, bought 100,000 shares at 116p, taking his holding to 337,000. We looked back at recent history, and found another non exec, Luc Vandevelde, buying 32,500 shares at 120p on March 24th, taking his holding to 72,500 shares.

View on Vodafone : Positive                   Value of directors dealings signal: High/Strong

Eaga (EAGA, 127p)

saw two purchases ny non execs last week, namely Roger Ayland and Malcolm Simpson, who bought 50,000 and 8,000 shares respectively, at around 120p, taking their holdings in the energy efficiency company to 50,000 and 96,000 shares respectively.

View on Eaga : Positive                              Value of directors dealings signal : High/Strong

QinetiQ (QQ., 146p)

last week announced share purchases by non execs Nick Luff and David Lees. Luff bought 20,000 shares at 141p, taking his holding to 70,000 share, and David Lees bought 10,000 shares at just over 144p, taking his holding to 83,000 shares. Back on the 12th of March, the CEO Graham Love had bought 100,000 shares at 141p, pushing his shareholding to over 5 million shares.

Sir John Chisholm, the Executive Chairman, called the top on QinetiQ when he sold 1.5 million shares within 8p of the high, at 220p, on 27th August last year. 

View on QinetiQ: Positive                  Value of directors dealings signal: High/Strong

The CFO of Tesco (TSCO, 365p), Lawrie McIlwee, last Thursday May 28th sold 36,282 shares in the multinational retailer at 370p, taking his holding to 18,000 shares.

We remembered some other recent sales, as a result of Options Exercises. In both cases all of the shares exercised were sold, which we interpret as negative on the basis that it results in a net sale of shares. If the directors had sold only sufficient shares to pay their tax and national insurance liabilities, then the transaction would be viewed as neutral.

On May 12th the IT director Philip Clarke exercised and sold 332,000 shares at 351p, leaving his holding unchanged at over 650,000 shares.

On May 19th Tim Mason, the President and CEO of the US operation, Fresh and Easy, exercised and sold 247,000 shares at 355p, leaving his holding unchanged at 678,000 shares.

View on Tesco: Negative (Directors selling shares)

Strength of Signal: Strong

(source: London Stock Exchange)

I’m thinking of taking some profits on 3i (III, 400p) (theoretical ex rights price 250p)

There will be no new news from this private equity group until the Interim Results, which are to be released in July, maybe with the AGM which is on July 8th (company website Financial calendar http://www.3igroup.com)

In reviewing the media on 3i I’ve come across a few ‘soundbites’ which are worth noting:

May 11th in a CNBC interview 3i Group Communication Director Patrick Dunne admitted the rights issue to be opportunistic: ‘we don’t need the money’.

He then went on to say that private equity valuations were ‘not quite at the go-shopping point’ yet. He also suggested that the target return of 20% was ‘being reviewed‘, that the returns ‘would be much more volatile going forward‘.

I was also drawn to a couple of questions in an article by Simon Nixon at the WSJ, also on May 11th: ‘investors need to ask themselves two questions: Has 3i sufficiently written down its existing £8 billion of assets under management, including £4 billion on its own balance sheet? And will future returns be sufficient on a risk-adjusted basis?’

3i shares are up 94% absolute or 74% relative to the market since our comment of February 25th ‘3i – Five of the seven non execs have bought shares in the last month’.

I’ve sold today half my position in the group.

For all followthedirectors comments on 3i click here.

In our analysis we have found non execs to substantially outperform executive directors when it comes to dealing in shares in their own company, to the tune of around 12-15%.

For further information on this see our post of April 2nd: ‘Non execs make better investors- by far’

There are a few recent transactions worth pointing out because they are by non execs only:

Homeserve (HSV, 1337p)

After announcing a proposal to divest of its  UK Emergency Services business this week, non execs Mark Morris and Andrew Sibbald each bought 2000 shares in the group, at 1278p and 1244p respectively, on the 22nd May and the 20th May respectively.

They each now hold 2000 shares.

Genus (GNS, 616p)

The animal breeding group have seen purchases by three non executive directors this week. On Monday the Non executive Chairman John Hawkins bought 1000 shares at 576p, taking his holding to 5100 shares. Mike Buzzacott bought 1000 shares at 578p, taking his holding to 1000 shares.

And on Tuesday Barry Furr bought 5000 shares at 600p, taking his holding to 8000 shares.  There are no imminent financial results due, but there have been bid rumours in Genus in the past. See our post of October 16th ‘Genus breeding positive directors’.

National Grid (NG., 587p)

Three non execs have bought into National Grid shares. Bob Catell, also a Deputy Chairman, bought 10,000 shares in ADR form, investing about 80,000 pounds, and taking his holding to 50,000 shares (May 21st).

On May 14th, John Allan and Philip Aiken paid 580p for shares, Allan buying 5000 and taking his holding to 7000 shares, and Aiken buying 1500 shares and now owning 3500 shares. The Questor article of May 14th is worth reading.

View on the above: all Positive (directors buying)

Strength of Signal:  all Strong (only non execs buying)

We made some money out of Experian (EXPN, 474p) after buying in November 2007 following directors purchases. We took profits in December 2008, follwing a share sale by non exec David Tyler, recording a 50% outperformance relative to the FTSE 100 share index.

Since then however, Experian shares have continued to perform well, rising by 13% with the market only just in positive territory, rising a paltry 1.6%.

Two transactions on May 20th and 21st have caused us to be more cautious on Experian:

  1. John Peace, the Chairman, has exercised options over 353,000 shares and sold them all, realising 1.75m pounds. He maintains his position at 1.1 million shares.
  2. David Tyler, the non exec who sold shares in December, has sold a further 100,000 shares at 479.55p.

View on Experian: Negative, Directors selling shares

Strength of Signal: Strong

pacelogo The CEO of Pace (PIC, 177.5p), Neil Gaydon, last week exercised options on 850,000 shares at between 63.5p and 74.25p, then sold all 850,000 shares at 177p (May 13th, source London Stock Exchange).

Gaydon continues to hold 41,000 shares and have options over a further 2.3 million shares. We looked back to see if Gaydon had a track record in share transactions, and found some interesting disclosures.

Pace shares were trading at below 40p in June 2006, and ran to a high of 130p 12 months later.

Gaydon and his colleague Anthony Dixon, the Pace Company Secretary, exercised options and sold all their shares in July and August 2007, at prices between 108p and 115p.

Pace shares reached a low again of 35p in November 2008, and have rallied strongly to a high of 186p at the beginning of this month.

Gaydons recent Options Exercise and Sale of all the shares was accompanied again by Anthony Dixon, who sold 135,000 shares at 170p, and also by Chief Operating Officer David McKinney, who sold 250,000 shares at 141p (sales executed between 29th April to 12th May 2009)

We view at share sales following options exercise as follows:

Retention of all shares: Positive ( a net investment by the director)

Sale of sufficient shares to pay for tax and social security: Neutral (no net in- or di-vestment)

Sale of all shares: Negative ( a net disposal by the director)

Pace shares have been hugely volatile, and we  think these Directors Dealings are worth listening to.

View on Pace : Negative (Directors selling shares)

Strength of Signal: Strong (based on individuals track record)

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