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Selfridges Bridge, Birmingham. SFR steel.

Severfield-Rowen, or SFR plc (SFR, 257p), a supplier of structural steel to large infrastructure projects in the UK, recently warned of softening demand going into 2008, which resulted in a 40% drop in share price. This could have been because investors were shocked to hear negative news on January 24th, having only as recently as December 10th had an upbeat pre close trading statement. Maybe in retail you might see such a quick shift in the trading environment, but not in a business such as structural steel, with long lead times.

So do SFR know what is going on with their customers, or was this just a screw up by SFR management, their brokers, and PR advisors?

I’ll let you decide on this evidence:

Five directors of SFR (11 exec and non exec directors) sold shares between 498p and 565p (adjusted for split) in April and May 2007.

After the share price collapsed last week (January 24th from 390p to a low of 222p the same day), five directors bought shares at between 256p and 258p, investing between £20k and £99k. They increased their holdings by between 50% and 200%.

The icing on the cake came this week, when non exec Chairman Peter Levine invested £992k in 400k shares at 248p. Levine has been Chairman of SFR since 1998. He has been selling SFR shares since April 2006, selling a total of 265k shares (equivalent in new post split form). This is the first time I’ve seen him buying (as far as I can find in the data), and he has increased his position by a multiple of four.

‘EasyJet slides as planes fly with empty seats’

Easyjet shares have recently taken a nosedive, prompting four directors to increase their holdings by a significant amount (Michels- Non exec, Browett- Non exec, Chandler- Chairman, and Harrison- CEO).

It is the Chairman, Sir Colin Chandler, who has the best track record. He has bought stock three times in the last five years. Within 10-12 months of his purchase, on each occasion, the share price has appreciated by between 70% to 110%.

Sir Colin Chandler

February 2003- paid 205p. easyjet shares traded at 370p 10 months later.

August 2004- paid 140p. easyjet shares traded at 300p 12 months later.

February 2006- paid 378p. easyjet shares traded at 650p 10 months later.

January 2008- paid 424p.

OK, so Chandler never banked his profits. But from the evidence above he clearly recognises a buying opportunity. An example I’m happy to follow.

Terry Burman, CEO, has started to buy back some of his Signet (SIG) shares. on Jan 16th he invested £60k at 61p per share to buy 98,000 shares. This is a mere drop in the ocean, and needs to be substantially reinforced through further investing before it becomes a buy signal.

Terry Burman- Signet (smile terry!!)

Why? Well, Tel boy between April 06 and April 07 sold about 3.2m shares between 95p and 124p (note the all time high was 127p in april 07).

A better indicator might be Chairman Malcolm Williamsons purchase on January 17th of 100k shares at 63p. This more than doubles his shareholding to 173,000 shares. Williamson was appointed to the board in 2005, and became chairman the following year. I’m afraid though that Williamsons expertise lies in the financial arena, with present and previous roles at Visa, Standard Chartered, National Australia Bank, and JP Morgan Cazenove. And I’m not sure I’d listen to him with regards to likely future activity of the common or garden consumer. So look for Burman to spend some more $$ before you buy Signet.

Malcolm Williamson- Signet

When I looked at Director share activity in the Real Estate back in early January, I found that buys outnumbered sells by 4:1 (source digitallook. using net director activity over 1 month. cut off £50k).

I find on my return from holiday that this has now accelerated to 10 buys vs 0 sells. Admittedly these are smaller caps such as Warner (WNER), Big Yellow (BYG), and Hansteen (HSTN). However I strongly believe that this behaviour reinforces our earlier call to buy the sector (November 25th- Real Estate Sector- directors are buying).

I’ve also been looking recently at reversals of director dealing activity by sector. To do this I look at the Directors net dealings over one year, and compare that data with the net activity over one month.

This throws up two sectors of interest, Travel, and Construction and Materials. In the Construction and Materials sector, stocks where we have seen significant director sales in the last twelve months more recently countered by buying activity over the last month, include Carillion (CLLN), Keller (KLR), and Rok (ROK).

In the Travel sector stocks that show a reversal from net selling to net buying are Clapham House, Partygaming, Restaurant Group and Prezzo.

Clearly both these sectors are highly exposed to Interest rates and Consumer sentiment. Opportunities present themselves in the stock market when investor sentiment is one sided. Any change in sentiment results in significant share price changes, as we are starting to see in the Real Estate Sector.

(Real estate sector stocks showing director buying activity over the last month are Sovereign SVN, Warner WNER, Rugby RES, Big Yellow BYG, Naya Bharat NBPC, DTZ DTZ, Hansteen HSTN, Quinlam QED, Real Estate Opportunities REO, Dolphin Capital DCI)

I want to wish you ‘good investing’ in a period of huge uncertainty. I suppose (is ‘hope’ a more appropriate word) the brave will be there to buy when everybody is panicking, which is why I’ve allowed myself to have a list of buys.

When I look at directors dealings I’m looking for a change of pattern or direction, an intensity of director interest indicated by volume and speed, and a sentiment change within a sector.

Stocks that satisfy one or more of these criteria are

  • Wolfson (WLF)
  • Aegis (AGS)
  • Findel (FDL)
  • Enodis (ENO)
  • Segro (SGRO)
  • Hammerson (HMSO)
  • Great Portland (GPOR)
  • Yell (YELL)
  • Michael Page (MPI)

Look in the archives or via the tag list for my reasoning on these stocks.

Real estate stocks are overweighted here, which I suppose shows a tendency to ‘value’, by me and company directors. If I look at the real estate sector overall though, I find that over the last month director buys outnumber sells by about 4:1 (source www.digitallook.com). Interestingly the bank directors seem to have gone a little quiet recently, after a flurry in early November (see RBS) !!

You’ll also notice a preponderence to midcap or ftse250 stocks in this list. This is not intended, but a result of the criteria. I don’t look at stocks smaller than the ftse 250.

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