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The risk to Marks and Spencer (MKS, 222p) was obvious from what I perceived to be exposure to a customer base with limited spending power. The whiff of Lily of the Valley with a faint hint of urine as I descended the escalator to the underwear and luxury foods hall at Marks’ Aberdeen branch betrayed the identity of a large part of the  groups customer base, the female pensioner.

When the mother in law switched her twice weekly shop from the nice fish and pre cut green beans in the food hall at Marks to the scrums at ASDA was when the profit warnings started. With UK interest rates collapsing, the purchasing power of this segment of Marks’ customer base has now evaporated.

But we have seen directors starting to buy shares, although in limited volumes.

I was tentative when Marks’ Deputy Chairman Sir David Michels picked up 84,000 shares in July and August between 249p and 265p (See ‘Marks- Sir David Michels increases holdings by 50%’).

Marks have however outperformed the index since August 16th, by 8%.

I still am tentative when I see Non Executive Director Jan du Plessis buy 20,000 shares at 222p (January 21st 2009), initiating a position in the group having been appointed non exec on November 1st 2008.

Du Plessis earned his stripes as CFO of the Swiss and South African luxury goods group Richemont for 16 years to 2004.

My view on Marks remains unchanged until I see more directors committing capital in bigger $$ amounts, something which may happen soon. Come on Mr Rose.

View on Marks and Spencer: Positive

Strength of Signal: Weak (requires further director buying to move towards Strong)

For all Marks and Spencer comments on this site, click here: Marks and Spencer

Seven directors of Burberry (BRBY, 229p) bought shares in November after the group warned of ‘tough conditions going into Christmas’.

Results today show like for like sales down only 3%, and an expansion of the cost cutting plan by an additional GBP 30-35m (Burberry Third Quarter trading statement here).

The shares have bounced sharply in relief today that trading over Christmas wasn’t as bad as the market had been anticipating.

So who did you listen to, the scary ‘tough conditions statement’ or the directors ?

Did you pay attention to the words or the actions?

Burberry shares are now up more than 35% since our comment on November 24th (STRONG signal, Positive view, see ‘Burberry Check’), and have outperformed the FTSE 250 index by over 20%.

Take profits.

Only a day after being appointed a non exec of Cairn (CNE,  1806p), Dr James Buckee has invested GBP 35k by buying 2000 shares at 1762p.

‘Dr Buckee was previously President and Chief Executive Officer of Talisman Energy Inc. Dr Buckee holds a BSc Honours in Physics from the University of Western Australia and a PhD in Astrophysics from Oxford University’ (Company website).

In October 2008,  six directors of Cairn invested just shy of GBP 480k at 1816p. See ‘Cairn Energy – Directors buyback closes negative view with 45% return’.

Since then Cairn have outperformed the market (FTSE 100) by 9%.

In April 2008 two non exec directors of Cairn sold shares at 2915p, and in May six directors sold shares at 3366p. From April to October Cairn fell 45%, which was 20% more than the market. See ‘Cairn Energy- non execs reduce holdings substantially’.

Based on historical performance,  I believe that any dealing activity by Cairn directors is worth listening to.

View on Cairn: Positive

Strength of signal:  Medium, no change from our comment of October 9th 2008.

News ahead: Operational Update from Cairn tomorrow (!) January 20th.

For all our comments on Cairn click here.

Over a year ago, in December 2007, the CFO of Next (NXT, 1150p) increased his holding bynext-spring-summer-09 8%, investing GBP 170k at 1711p. I didn’t view this as a strong signal, as he was a solo buyer, unaccompanied by other directors, and increasing his holding by less than 8% (followthedirectors: ‘Next- Keen but not yet convinced’). Over the next six months Next underperformed the market by about a third.

What I missed in July 2008 was the turning point for Next. Three directors (Chairman Barton, CFO Keens, and Non exec Dawson all bought shares, investing between GBP 16,000 and 37,000 each. I missed it due to the low $$ value of each transaction. It missed my screen. Next duly outperformed the market by over 70% between July and now.

Last week Andrew Varley, the Group Property Director, sold 10,000 shares at 1234p taking his holding to below 70,000 shares (Source: London Stock Exchange). I do think this sale is significant: Varley has been on the board of Next for 18 years, the sale value is more than the combined purchase value of Keens, Dawson and Barton.

View on Next: Negative

Strength of signal: Medium

Barratt (BDEV,  80.25p) directors have been actively buying into the group since November, initiating or significantly increasing their personal holdings as follows (Source: London Stock Exchange):

  • November 18th Robert Lawson, Non exec Chairman, bought 151,000 shares at 65.3p, and now holds the same amount.
  • November 20th Mark Rolfe, Non exec director, bought 30,000 shares at 62p, and now holds the same amount.
  • December 19th Mark Clare, CEO, bought 357,000 at 69p, taking his holding to 529,000 shares.
  • December 19th Mark Pain, CFO,  bought 60,000 at 74.8p, taking his holding to 100,000 shares.
  • December 23rd Stephen Boyes, Executive Director, bought 65,000 shares at 76.4p, taking his position to 107,000 shares.

Between them these directors have invested GBP 450k, at a time of  great uncertainty in both the stock and property markets.

Barratt have however impressed the market with recent results, showing an impressive ability to generate cash and pay down debt, as well as reduce costs by shedding 60% of their employees.

The group today warned of margins being squeezed, and therefore unlikely to meet brokers estimates [ which is probably near term and pretty irrelevant to the long term viability of this business] (FT article).

What matters with this group is that directors are actively buying, and they appear to be managing the economic problems quickly and positively.

On November 8th 2007 (‘Housebuilders- too early to buy’), with Barratt above 500p, we warned of downside in the sector as a result of seeing significant directors share sales at Savills. I’m happy now to be looking for opportunities to invest in Barratt for the longer term below 75p.

View on Barratt Developments: Positive

Strength of signal: Strong (caveat: must be viewed long term ).

barratthomes

Back in August last year, we noticed that despite excitement over a potential bid for Liberty International (LII, 522p), senior management in the form of a Harold Newton was selling shares. Unusual behaviour if you think there could soon be a bid on the table (see August 31st ‘Liberty International- PDMR selling’).

Since our caution, Liberty International have underperformed the Real Estate sector by around 20%, and the FTSE 100 by over 30%.

We believe Liberty International shares will continue to be vulnerable:

December 17th 2008 Harold Newton, a PDMR of Liberty, sold 19,000 shares at 495p taking his holding to 74,000 shares. Also

December 23rd and 24th William Black, also a PDMR of Liberty, sold 10,000 shares at between 482p and 488p, taking his holding to 100,000 shares.

View on Liberty International: Negative

Strength of Signal: Medium

For all comments on Liberty International (LII) click here.

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