You are currently browsing the monthly archive for September 2008.
Wow. Aren’t you exhausted? What a week that was. Thrilling too. You never knew what was going to come at you next!
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We’ve seen a few sells this week. Stocks worth noting for directors selling activity are Savills (SVS), De La Rue (DLAR), and Hargreaves Lansdown (HL.).
Savills (SVS) directors have been a pretty good signal for future share price performance, but the disclaimer must be ‘the past is no guide to the future, you can lose everything in the stock market’. On the positive side availability of capital should lead to some pick up in activity in real estate, on the negative side look at Savills huge cost base.
Hargreaves Lansdown (HL.) directors say ‘Volatility will impact profit growth’. CFO and Head of Accounting have been selling.
De La Rue (DLAR) CEO and CFO both sold this week, taking profits in a stock which is up 50% relative to the FTSE 250 index. Maybe the good news is all in the price.
On the buy side:
Shire (SHP) directors have been consistent buyers. They have a track record. And five of them are buying. Definitely worth a look.
New World Resources (NWS) fall of 50% in the last three weeks has prompted a number of directors to buy. This coal miner and coke producer is, of course, highly vulnerable to a slowdown in economic activity. The directors seem to be more confident than the stock market.
Heritage Oil (HOIL). We’ve seen a number of buyers in small oil companies over the last two to three weeks, including ROC, Arawak, Heritage, and Serica. This may signal a support level for the energy sector.
And what about Prudential (PRU)? Mark Tucker CEO invested GBP 100k on Monday 15th September at just shy of 500p. He bought 20,000 shares taking his holding to 1.5m shares. I don’t interprete this transaction to be a valuable signal as
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Only Tucker is buying, no other directors, and
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This is a tiny increase in his existing holding.
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Granted, he is up 20% on GBP 100k in a week. Time will tell.
Enjoy the week ahead. Keep calm and think of the long term.
Just as the central banks are ramping up the printing presses, and De La Rue (DLAR, 948p) declare a ‘strong order book’ and ‘operating cashflow remains strong’ in their pre close statement on September 16th, the CEO Leo Quinn and CFO Stephen King reduce their holdings substantially.
The statement reads fairly positively, but the one thing missing is any comment on costs. Maybe those haven’t been added up yet.
Stephen King, CFO, on September 18th sold 36907 shares at 920p, raising GBP 340k. These are the balance of the shares he exercised in July, having sold about 25,000 to pay the tax due. He is left with 46620 shares.
Leo Quinn, CEO, on September 19th sold 78500 shares at 948p, raising GBP 740k. This leaves him with 126,000 shares.
De la Rue looks to be ‘up with events’, having outperformed the FTSE 250 by 50% in the last year. I think King and Quinn might have a point here.
Value of directors dealings as a signal for investors: STRONG.
New World Resources (NWR, 900p) is a Czech and Central European coal miner, producing coking coal and thermal coal.
NWR has a secondary listing in London, and caught my attention last week when two directors bought GBP 30k-40k each at above 1050p. They were followed this week by three more, investing GBP 35k to GBP 250k each, a not inconsiderable sum, at prices between 718p and 940p.
The stock has halved since they produced interim results at the end of August (link to company website). I shalln’t [how do you spell this word] attempt to analyse the results, but the main two points were a huge jump in operating cash flow (172%) due to prices, and a big jump in costs (15% underlying).
Conclusion: Five directors buying (2 execs, three non execs), good size (GBP 35k to 250k), and a significant increase in shareholding (25% to 100% of existing holding) warrant a STRONG signal.
Risk factors include: secondary listing in London, relatively recent IPO (May).
For the official announcements of directors dealings in NWR go to the London Stock Exchange ‘Market News’ website, and type ‘NWR’ in the ‘name/code’ box.
It seems to me as if Savills (SVS, 266p) are almost a second derivative on the UK housing market. Not only are there huge swings in sentiment on housing, but these seem to play out with greater amplitude in the Savills share price.
Of course Lehmans demise will impact the London housing market. Not only by Lehman redundancies, but also having all those other banks not paying bonuses for a couple of years: ‘you’re lucky to have a job, son’.
Savills directors dealings seem to be a pretty good indicator (or maybe influence) on the share price.
Simon Hope on Friday sold 62283 shares at 295p, taking his holding to 87,547 shares.
I’ve commented on him before (links to comments in blue), so let’s look at how the share price coincides with Directors activity in the sector, and my comments:
November 8th 2007: Hope sold GBP 350k (net of options exercise) of shares at 353p. I said Housebuilders- too early to buy.
March 10th 2008. I highlighted the ‘risk’ inherent in Savills shares ahead of results, using Hopes share sale in November as an indicator, by saying Savills up 50% this year, results Wednesday. Watch out.
August 4th 2008. We saw directors (Sir John Ritblat and CEO Izett) buying at Colliers Re, also in the agency/property management sector. As a result I said Real Estate agents – time to buy?
Now let’s look at the value of using these directors dealings as a signal for investors. I list here the dates of my comments, and the share price performance between them:
November 8th to March 10th SVS down 5%
March 10th to August 4th, SVS down 35% absolute, or down 13% relative to the FTSE 250.
August 4th to September 12th, SVS up 33% absolute, or 32% relative, but Hope didn’t announce his sale until yesterday, so
August 4th to September 15th, SVS up 23% absolute, or up 25% relative.
So what is the downside risk in Savills today then, and can this string of successful calls be repeated?
Between August 4th and today, Savills are up roughly 30% relative to Colliers Re. If you look at a longer term chart of these two stocks, they more or less perform in line with each other. Colliers is a little slower to move due to its illiquidity. So that’s what I think the scale of the downside risk is in Savills.
Also note that Savills have a pretty heavy cost base with 17,000 employees, versus Lehmans 28,000.
Value of Directors Dealings as a signal to investors: STRONG
Link to all my previous comments on Savills here.
I want to revisit Shire (SHP, 911p). 
In February David Mott, a non exec with a great pedigree, initiated a position in Shire by investing GBP 150k, saying ‘Shire is one of the most interesting companies in the industry with an impressive recent track record of launches and an equally exciting pipeline’ (see ‘David Mott- puts his money where his mouth is‘).
Last Thursday, Mott committed almost the same amount of cash again, doubling his holding to the equivalent of 30,000 ordinary shares in Shire, by buying 5,000 ADS at $48 (equivalent to buying 15,000 ords at 910p).
I also find other recent purchases:
August 6th Graham Hetherington, CFO, buys 4000 shares at 896p taking him to 56,000 shares.
August 5th Matthew Emmens. Non exec Chairman, exercises options on almost 40,000 shares at an average price of around 430p. He would normally need to sell roughly 40% of these shares to pay for the tax liable, but is not doing so, so I consider this transaction to be a net investment by Emmens.
August 1st Michael Rosenblatt, Non exec, bought 1155 shares at 800p
June 13th Aungus Russell, CEO, bought 6000 shares at 804p
If I then look back further to see if directors have historically bought and sold at the ‘right’ times, and I find the following:
I see directors were buyers at 868p to 888p level in September 2006.
Then from November 2006 to September 2007 they were net sellers (exercised options and sold almost all the shares) in range of 1056p to 1270p (shares peaked at 1310p in August 2007)
And now they are buyers again, as from February this year, in range of 804p to 998p (shares troughed at 745p on July 16th).
With the observation of ongoing buying activity in decent $$ amounts, as well as having several directors buying over a short period, I believe the ‘signal’ given by directors dealing activity in Shire Ltd should move from WEAK to STRONG.
Over a tense weekend for the 25,000 employees of Lehman, praying for a rescue package, I spot further director selling at Hargreaves Lansdown (HL., 191p).
On September 9th we saw the CFO Martin Mulligan and his Accounting colleague Tracy Taylor selling down less than 10% of their holdings.
On September 11th the Group Compliance Director Nigel Bence sold almost a third of his holdings, selling just over 250,000 shares held in his and his wifes name, to leave them with 561,207 shares.
HL were up more than 50% from their low. With equity trading volumes falling and the US heading for months of financial turmoil as a fallout from the (likely) collapse of Lehman (FT comment), I consider the risks lie substantially on the downside, and suspect Bence, Mulligan and Taylor would agree with me. As management concluded in their results presentation last week: ‘Volatility will impact profit growth’. That volatility is not yet receding.
For my last comment on Hargreaves Lansdown of September 12th ‘Volatility will impact profit growth’ see here.
With a third director selling, I now consider the value of the ‘signal’ from directors dealings to be STRONG.
Addendum Sept 24:
Further selling by CFO Martin Mulligan (sold 142k shares at 202p 19/9) and Head of Group Accounting Tracy Taylor (sold 30k shares at 200p-204p 22/9) reinforce the signal on Hargreaves Lansdown.
I’ve looked at the Hargreaves Lansdown (HL. , 190p) share price performance since the results on August 27th. The shares moved from 161p to a high of 209p, and are now off the top at 190p.
So a more than 25% uplift after a great set of results (to June 2008). Of note was an increase in assets under management, and an increase in the proportion of income that is recurring, up about 4% points to 72%.
I then looked at the slides from the analyst presentation, and recount here from the ‘Conclusion’ slide:
‘Resilient business’
‘H-L is well positioned in the market’
‘Volatility will impact profit growth’
‘….but long term prospects remain very positive’.
I also notice a comment on FT’s Alphaville quoting a Citigroup report that shows a marked slowdown in global stockmarket activity n August, down 37% in value vs last year.
And I then understand why on September 9th the CFO of Hargreaves Lansdown Martin Mulligan has taken some money off the table by selling 200,000 shares at 193p, taking his holding to 2.1m shares. His colleague Tracy Taylor, Group Accounting Director and Co Secretary, has also sold, 65,000 shares at 193p taking her holding to 932,000 shares.
Of note is Mulligans past trading activity. He sold 1.2m shares in September 2007 at between 208p-210p. HL shares subsequently fell to 135p in January.
So maybe ‘volatility will impact profit growth’ is the line to focus on for the next six months.
Signal strength: MEDIUM
Link to Hargreaves Lansdown Investor Relations site.
It was announced yesterday that John Juric, a PDMR [senior manager] of Fiberweb (FWEB, 52p), had on September 8th invested GBP 52,000 by buying 100,000 shares at between 52p and 52.2p.
This led me to review recent director buying at Fiberweb. Directors of the group have trebled their positions in Fiberweb by buying over 1.2 million shares in the last four months, at prices between 43p and 45.6p.
Fiberweb was spun off from BBA Group in late 2006, initially trading at 167p before moving to a high of 226p in February 2007. It wasn’t until the share price had retreated to 56p in October 2007 that a majority of directors started to buy.
I have suggested in past comments that these ‘signals’ from directors buying remind me of Enodis and EMAP, where, following a collapse in takeover talks, directors aggressively bought shares in their own company.
Signal strength for director dealing activity in Fiberweb remains ‘STRONG’
For my previous comments on Fiberweb ‘Directors buying, cost cutting, possible takeover target’, and ‘Directors pile in after takeover talks collapse’ click link here.
To access a Reuters profile of Fiberweb see here.
Enodis commentary here.
EMAP commentary here.
Disclosure: I have a position in Fiberweb.
followthedirectors... a study of directors share dealings 