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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
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%
‘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/)
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
followthedirectors... a study of directors share dealings 
