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On October 14th I posted the following article ‘Are directors buying shares?’, prompted by your questions.

‘As at October 10th the number of companies in the FTSE 350 indicating net directors dealings over GBP 50k over the period I asked for (1, 3 and 12 months) were as follows:
1 month to October 10 2008:
26 companies showed net selling over a cumulative GBP 50k, and 32 companies showed net buying.
3 months to October 10th 2008:
58 companies showed net selling, and 54 companies net buying
12 months to October 10th 2008:
144 companies showed net selling, and 130 companies net buying.’

 

I’ve just run the Digitallook screen again, and find that over the past month, to today, companies in the FTSE 350 which exhibit cumulative director share dealing activity greater than GBP 50k are as follows:

6 companies show net selling, and 59 companies show net buying.

Over the past week, the screen shows 3 companies showing net selling, and 18 companies showing net buying.

This indicates that Buyers outnumber Sellers by between 6:1 and 10:1.

A very powerful signal that company directors think shares are cheap.

I guess valuation has something to do with it. The FTSE 100 is roughly 10% lower, and the FTSE 250 very roughly 20% lower over the one month period (compared to the one month to October 10th). Anecdotally most of the buying activity has occurred in FTSE 250 stocks.

For followthedirectors comments on companies exhibiting director buying activity click here (This is not a comprehensive list, but companies that we believe warrant comment).

For other general market commentary see Market Musings here.

For the excellent Digitallook screening tool go to Digitallook.com

Mike Lawrie, CEO of Misys plc (MSY, 118p), and Chairman of Allscripts after Misys completed a purchase of the majority of the shares in the company, has bought 70,000 shares in Allscripts at $5.0921 (27th October- source London Stock Exchange– type MSY into Code box).

Lawrie already has a $1m shareholding in Misys (excluding his share options and performance plan shares). Does he now think Allscripts is the cheap (er) way to invest in the group?

Misys have outperformed the market by 25% since Lawrie last bought shares in March 2008. In ‘mmmmmm Misys – ‘Turnaround Strategy’ working? ‘ followthedirectors drew attention to the Misys directors share purchases: 

Misys’(MSY. 137p) CEO, CFO and Chairman have increased their positions by between 14%, 50% and 60% respectively, buying shares at between 135p and 136p last Friday.
So why look at Misys?
1. Significant increase in positions (50-60%)
2. Three senior bods buying £70-£135k of shares each
3. Misys is one year into ‘Turnaround Strategy’, which should go some way to insulating them from the expected downturn in demand from banking customers.
So one for the watchlist, or for the long term investors.

Lawrie last paid 136p for Misys in March 2008. At the time MDRX were trading at $9 or 450p.

Misys are now trading at 118p, a fall of 14%, and MDRX at $5.50 or 342p, 24% lower (in the weaker pound).

Is that a huge variance? No. But I note, looking at Bloomberg, that the short position in MDRX amounts to 6.2m shares. Maybe that will all unwind when the acquisition of shares by Misys is settled.

Either way, I suspect that MDRX offers better growth (Medical underpenetrated by technology, higher recurring revenues, greater certainty of revenues than Banks), more certain cost savings (from merger of Misys and Allscripts Healthcare businesses), and ‘cheaper’ shares (as US holders sell out of what is now essentially a UK controlled company).

So if you are looking to buy Misys, investigate MDRX as a possible alternative. Lawrie has a good track record in his share purchases.

For all Misys comments on this site click here.

For the latest presentation (October 23) by the management of Misys Allscripts go to the Misys website.

View on Misys: Positive

Strength of signal indicated by directors share dealings: Remains STRONG

Disclosure: I have a position in Misys plc

WSJ November 5th ‘Allscripts executives snap up shares’

Five Executive directors at GKN plc (GKN, 126p) have bought 386,000 shares between them this week, increasing their shareholdings in the group by 75% to around 896,000 (Source: London Stock Exchange).

Those directors are:

CFO William Seeger, CEO Sir Kevin Smith, CEO of Powder Metallurgy Andrew Smith, CEO of Aerospace Marcus Bryson, and CEO of Automotive Nigel Stein. It’s particularly encouraging to see Stein investing here, in view of the recent profit warnings from the car makers globally.

Stein bought 84,000 shares at 100.5p on October 28th, taking his holding to 209,000 shares.

Andrew Smith and Marcus Bryson were sellers near 330p in August 2007, so buying shares at 109p must feel good. Unfortunately CEO Sir Kevin Smith was not quite so savvy. He paid 360p in March 2007.

So GKN join the merry band of UK Engineering companies exhibiting director buying activity: Weir Group, Bodycote, John Wood, Senior and IMI.

See ’25 Directors buy shares in UK Engineering Companies’ (October 28th followthedirectors.co.uk)

View on GKN: Positive- Five directors buying shares

Signal Strength: STRONG- Five directors buying, investing GBP 400k between them, increasing holding by 75%

I’m not talking about the big cap FTSE 100 stocks here, but smaller FTSE 250 companies that are the global leaders in their field of specialty engineering.

Many of these companies have grown from a UK engineering base to have globally spread customers. They may also be companies with less near term economic exposure, protected by longer lead times, and also big beneficiaries of a weak Sterling.

It is unusual to see so many companies in one sector showing directors purchases, most of which have occurred in the last ten days. The directors clearly think trading conditions are better than those indicated by the share valuations in the stockmarket.

Weir Group (WEIR, 295p) : Three directors have invested GBP 350k in last two months.

Provider of engineering solutions (pumps, valves, pipelines, maintenance etc) to the mining, oil and gas, and power generation markets worldwide.

10x Half year 2008 operating cash flow. GBP 620m mkt cap.

Senior plc (SNR, 42.5p): : Six directors have invested GBP 70k in last two months.

Senior designs, manufactures and markets high technology components and systems for the principal original equipment producers in the worldwide civil aerospace, defence, diesel engine, exhaust system and energy markets.

6.8x Half year 2008 free cash flow. GBP 170m mkt cap.

IMI plc (IMI, 269p) : Three directors have invested around GBP 80k in last two months. 

IMI is an international engineering company, which operates primarily in the fluid controls and retail dispense areas. Fluid controls covers pneumatics, severe service valves and indoor climate products and services, while retail dispense includes beverage dispense and merchandising systems.
13.4x Half year 2008 operating cash flow. GBP 860m mkt cap.
John Wood Group plc (WG., 179p) : Four directors have invested over GBP 1m in the last week.
The international energy services company provides the oil and gas and power generation industries with engineering design, production support and industrial gas turbine services.
10.7x Half year  2008 operating cash flow. GBP 950m mkt cap (in FTSE 100, not FTSE 250).
Bodycote plc (BOY, 122p): Five directors have invested GBP 400,000 in last two months.
‘Bodycote is the world’s largest and most respected provider of testing and thermal processing services: Heat Treating, Hot Isostatic Pressing, Metallurgical Coatings and Testing – operating in 30 countries’ (strategy page on co website).

13.8x First half 2008 operating cash flow. GBP 400m mkt cap.

Read ‘Can Sulzer come back and bid for Bodycote? Ask the directors’  published at followthedirectors October 28th 2008.

Laird plc (LRD, 153p): Four directors have invested around GBP 70k in the last week.

Laird plc‘provide technology for an increasingly connected world’ in the form of  Electronic Components and Antennae enabling wireless connectivity (see co website for the lowdown).

10x First half 2008 operating cash flow. GBP 280m mkt cap.

Read: ‘Confident Laird directors delve into their pockets’ October 28th 2008 followthedirectors.

 

Disclosure: I have positions in Bodycote and Laird

Information sources: Company websites and London Stock Exchange.

‘Bodycote (BOY, 118p) is the world’s largest and most respected provider of testing and thermal processing services: Heat Treating, Hot Isostatic Pressing, Metallurgical Coatings and Testing – operating in 30 countries’ (strategy page on co website).

Four directors have bought shares in the last two months, and the CEO has exercised options over 148,000 shares (at a premium to todays price).

Between them and a PDMR they have bought around 132,000 shares in the market, and 148,000 shares via the options (CEO), investing over GBP 400k. Purchases and options exercises have been made between 114.88p and 206p over September and October 2008 (source: London Stock Exchange Market News website, type in BOY for all Bodycote news)

Why?

April 2007: Bodycote rejects fourth takeover bid from Sulzer (Times 20th April 2007) (stock reached high of 325p in March 2007)

October 2008: Bodycote announces completion of sale of Testing business for GBP 417m (October 17th 2008, company website)

Today: Bodycote shares now trading at 118p and have a market cap of GBP 380m.

Do you think Sulzer might come back for Bodycote? I don’t know Sulzers strategy or their financial position. Maybe you should ask somebody that does. But the directors clearly believe, as shown by their actions, that Bodycote shares are cheap.

View on Bodycote: Positive- Directors buying

Strength of Signal: Very STRONG. 5 out of 6 directors buying shares, significant $$ investment, company has a history of bid activity.

See also ’25 directors buy shares in UK engineering companies’ (October 28th followthedirectors.co.uk)

Laird plc (LRD, 150p) ‘provide technology for an increasingly connected world’ in the form of  Electronic Components and Antennae enabling wireless connectivity (see co website for the lowdown).

They last declared results at the end of July for the June half year, showing an operating cash flow of GBP 28m for the half year (or GBP 12.9m after tax and financing). For a company with a market cap of GBP 270m that looks pretty good (co slide presentation here).

On October 21st Laird issued an interim management statement, the key points of which we saw as ‘we continue to match our direct labour to changes in demand’ and ‘Laird remains extremely strong with low financial gearing and double-digit interest cover’ (full statement here).

In March the executive directors Hill, Silver and Rapp all exercised options and sold roughly the required amount to pay tax, at 494p per share.

In the last week four directors , including Peter Hill (CEO) and Jonathan Silver (CFO) above have been buying shares as follows (source London Stock Exchange):

22nd October :

Christopher Hum, non exec, buys 1512 shares at 161.675p per share taking his holding to 3000 shares.

Jonathan Silver, CFO, buys 20,000 shares at 167p per share, taking his holding to 210,000 shares

23rd October:

Peter Hill buys 18,000 shares at 156.36p, taking his holding to 200,000 shares, and finally

24th October:

AJ Reading, non exec, buys 3000 shares at 147.25p per share, taking his holding to 15,000 shares.

What do we think?

1. Four directors buying shares, mix of non exec and exec, shows confidence in the current half year performance of the group.

2. The size of purchases is however in three cases only 10-20%. I’d love to see a greater commitment.

3. Buying in times of huge uncertainty in the market is worth more to us as a signal than buying in stable times.

View on Laird: Positive- four directors buying

Significance of purchase: High/Strong– four directors buying in times of turmoil, four months into the half year.

See also ’25 directors buy shares in UK engineering companies’  (October 28th followthedirectors.co.uk)

 

 

 

 

 

 

 

Sports Direct’s Mike Ashley has been having a tough time ‘New Pain for Ashley’ (Evening Standard 23rd October). Sports Direct International floated in February 2007 at 300p and has headed one way since then.

Are Sports Directs (SPD, 38.25p) shares now cheap?

Ask David Singleton, a non executive director. He bought on October 23rd 150,000 shares at 37.6p, taking his holding to 153,000 shares.

‘Dave Singleton was appointed a Non-Executive Director of the Company on 25th October 2007.  He spent 25 years with Reebok International Limited.  He stepped down in April 2007 he helped successfully to integrate Reebok following its acquisition by adidas Group in January 2006.  For eight years he was Vice President, Northern Europe Region & UK and since 2003 he was Senior Vice President Europe, Middle East & Africa’  (Sports Direct website).

Maybe the Sports Direct share price has been inextricably linked to the price of England shirts.

England shirts went on sale on 6th February 2007 at GBP 39.99. They are now for sale at GBP 4.49. That is 11.2% of the original price. Sports Direct shares are trading at 12.7% of the original floatation price.

Let’s hope the price of England shirts starts to go up !

 View on Sports Direct: Positive- Director buying

Strength of Signal: WEAK- only one director buying.

Shirt prices:

GBP 39.99 (http://www.anfield-online.co.uk/store/new-england-home-shirt-2007.html)

Ad above for GBP 4.49 (http://www.sportsdirect.com/)

IMI plc’s (IMI, 268p) CEO MJ Lamb has started to buy back shares in his company (co website).

Martin Lamb sold 105,000 shares at between 513p and 517p back in May this year. IMI are now trading at almost half that level now, in the 260p’s.

Lamb is dripping his money back in: Mrs Lamb bought 10,000 shares at 288.5p on October 14th. Lamb himself bought 5000 shares at 260p on October 24th.

Lambs colleague, CFO Douglas Hurt, has also been putting a few $ to work, with his wife buying 6500 shares at 288.5p, also on October 14th.

If you take a look at the IMI fact sheet (1MB download) you’ll see a group with a geographically diversified sales profile, which could presumably be a longer term beneficiary from weak Sterling.

View on IMI plc: Positive, directors buying

Signal strength: MEDIUM – requires a larger $$ amount to be invested, as well as more directors, to warrant a Strong rating.

The biggest purchase for years by a director or non exec at Prudential (PRU, 333p), Harvey Mcgrath on Tuesday bought 291,000 shares at 343.29p, investing just shy of one million pounds (Source: London Stock Exchange).

McGrath was appointed a non exec of Prudential on September 1st, and is to take up the role of Chairman in the New Year. He worked at Man Group in various roles, moving to CEO in 1990 to 2000, and Chairman from 2000 to 2007 (Prudential website, Man Group website).

What is a million pounds to McGrath? Back in 2005 in the Andrew Davidson interview in The Times, he was said to be worth GBP 120m. That was with the Man share price at 20 quid. Man are now trading at under 4 pounds, and I’m sure, having run a hedge fund group, that McGrath will have hedged his position in Man. So let’s have a guess at GBP 75m.

In that case an investment of 1 million of the Bank of Englands finest folding doesn’t seem like such a huge punt.

But what this share purchase is is a vote of confidence in Prudential’s strategy to explore a possible purchase of AIG’s Asian business, and a vote of confidence in the groups Capital levels, and longer term probably a great money making opportunity by a hugely successful operator in the financial markets (Independent: Prudential reassures investors on capital levels).

How does this purchase rank on the followthedirectors scale? CEO Tucker bought shares in Prudential back in mid September, investing GBP 100k at between 485p and 511p, but increasing his holding by only 20k shares to 1.5m shares.

I’d like to see Tucker and McGrath followed by other directors of Prudential for this purchase to warrant a ‘Strong’ signal.

View on Prudential: Positive- directors buying

Strength of Signal: MEDIUM

The Restaurant Group (RTN, 117p) has outperformed the FT Small Cap by 20%, or the FT All Share by 15% since it was written up here on March 14th : ‘Consumer stocks at risk? Not TRG according to directors‘.

When impressive interim results were announced in August, analysts warned of the impact of cost pressures on the group: ‘Frankie and Bennys profits surge comes with a warning’ (Scotsman 30/8/08). Maybe with collapsing commodity prices those cost pressures are now turning into benefits?

Our opinion on The Restaurant Group remains positive, and is reinforced by the purchase of 200,000 shares at 104.2p on Monday October 20th by John Jackson, a non executive Director, trebling his holding to 300,000 shares.

Opinion on Restaurant Group: Positive

Strength of Signal: Remains STRONG

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