You are currently browsing the monthly archive for April 2009.

John Wood Group plc (WG., 236p) have outperformed the market since directors bought shares in October 2008 (up 32% absolute, up 5% relative) and December 2008 (up 27% absolute, up 10% relative) (for the followthedirectors comments on October 28th (179p) and December 10th (185p) click here).

Last week we saw Mark Papworth, an Executive Director of John Wood Group, exercise options over 50,000 shares at 3.3p, and sell them all at 247p. (April 24th, source London Stock Exchange).

We at followthedirectors view this negatively. A sale of sufficient shares to pay for the tax liability on the options exercise would be seen as neutral. A`sale of a greater number of shares is treated as a net sale, in this case of around 25,000 to 30,000 shares. This follows 16 individual cases of share purchases since October 2008 by directors of John Wood Group.

View on John Wood Group plc: Neutral- close positive view of October 28th and December 10th 2008.

Strength of Signal: Weak

interservelogo300ppiInterserve (ISV, 203p) is a services, maintenance and building group (www.interserve.com).

In May to September 2007, Executive Directors Vyse, Jones and Ringrose exercised a significant volume of options, and sold all the resulting shares at between 496p and 526p.

Vyse has since retired, but Adrian Ringrose (CEO), Tim Jones (CFO) and Steve Dance (Exec Director) in March this year started buying shares 60% cheaper, at between 199p and 213p.

Ringrose bought 23200 shares at 213p taking his holding to 112,000 shares, Jones bought 17228 shares at 200p, taking his holding to 61,000 shares, and Dance bought 13427 shares at 199p, inititating a position. (17th to 30th March 2009- source London Stock Exchange).

They have since been followed by Exec Director Bruce Melizan, who on April 8th bought 13954 shares at 192p, initiating a position, and David Thorpe, a Non Exec, also initiated a position by buying 12793 shares at 194p on April 21st.

Conclusion

That makes all four Executive Directors and one Non Exec buying shares in Interserve. Of course this sounds very convincing, but if we look at the historical performance shown by companies we have monitored since November 2007, not so compelling.

In the seven cases where five directors have bought shares, the average relative performance has been -23%.

In the five cases where four or more executive directors have bought shares, the average relative performance is 0.84%.

Directors in these cases may have been subject to group think‘. Without qualitative analysis (interviewing all the directors) we can’t say whether this is true or not.

So history is against you. Of course the past is no indication of the future !!

View on Interserve: Neutral– could change to positive if we see more non exec purchases.

Value of signal (directors dealings)- Weak

Tomkins (TOMK,151p). this stock has run from 95p in November to above 150p now. So it is interesting to see a PDMR (senior management, but not board level) selling down his holding. Terry O’Halloran has sold 62147 shares at 147.5p, taking his holding to 363,000.

TUI Travel (TT., 255p). Another stock that is up 70% from its November lows. The Commercial Director, Will Waggott, has sold 70,000 shares at 252.27p, only a few pennies shy of where CEO James Long sold all the 828,000 shares he exercised in May 2008. The shares might start to run into a bit of resistance here.

Rotork (ROR, 844p). Carlos Elvira, the Sales and Marketing director, has a track record in his dealings:

13th May 2008, sold Rotork shares at 1146p

24th October 2008, bought Rotork shares at 664p

6th April 2009, sold Rotork shares at 818p

+ Beazley (BEZ, 99p) announced a purchase by Non Executive Chairman Jonathan Agnew of 15,000 shares at 93.77p (April 8th 2009), taking his holding to 213,000 shares. Agnews colleagues Andrew Beazley and Andrew Horton both dipped their toes in the water and bought a negligible number of shares when compared to their existing holdings back in the October slump at around 87-89p. The stock rallied to 130p, and is now back below a pound. If we see more non exec purchases we’ll look to take action.

Tim Bolton Carter, the Investment Director at Rathbone Brothers (RAT, 808p), has made a small purchase of 1000 shares at 758p (March 30th London Stock Exchange). We’ve seen only sales by directors of Rathbones for the last six months, on which we based our negative view.

But this is the first purchase, and may signal a change in sentiment within the group.

We close our negative view on Rathbone Brothers.

Note of September 25th: ‘Rathbone private client managers sell down holdings’. (1060p)

Since then, Rathbones shares have fallen 24%, which is 8% worse than the market.

View on Rathbones: Neutral

Ian McHoul, a non executive director of Premier Foods (PFD, 33p) last week sold 177,000 shares at between 34.67p and 34.75p, to take his holding to zero.

We turned positive on Premier Foods on October 21st at 32.25p, on the news that 7 directors and 4 PDMRs bought shares (followthedirectors comment of October 21st here).

It has been a bit of a roller coaster ride in this one, with the shares driven this way and that over funding concerns, trading as low as 16p and as high as 38p.

These concerns were addressed at the beginning of March, when the company raised GBP 37om net of expenses, which gives them plenty of breathing room with the debt covenants pushed out to 2013 (Independent article of 6th March).

We close our positive view as a result on the sale of shares by the non exec.

Performance since October 21st 2008: +3% absolute, -6% relative.

View on Premier Foods : Neutral

Galiform (GFRM, 19p), the UK kitchen builder and joinery company, announced last week (26th March, londonstockexchange.com) that the CEO Matthew Ingle and the CFO Mark Robson had substantially increased their holdings.

Ingle bought 870,000 shares at 15p and 17p, taking his holding to 2.7m shares, and Robson bought 403,000 shares at 17p, taking his holding to 930,000 shares.

Good news?

If you look at historic cases of two non execs and no non execs transacting, the average relative underperformance since the transaction is -8%. If a non exec joins them, then the historic performance jumps to + 16% (followthedirectors analysis of transactions of 350 directors over last 14 months-unpublished).

I got this one completely wrong in April last year, when Robson bought 132,000 shares at 77p. The stock is down 73% since then, a relative underperformance of 33% (see ‘Housebuilders at a standstill, but galiform directors buying’).

It may simply be that Galiform directors, and the share price, are playing catchup with Barratts. We saw Barratt (BDEV, 126p) directors buying shares in November and December. Barratt shares are up 69% absolute or 60% relative since our comment on January 15th: ‘Barratt- look for buying opportunities.’

I see the Galiform directors purchases as reinforcing a positive view for the housebuilding sector overall.

View on Galiform: Positive.

Reiterate Positive view on Barratt Developments.

Signal strength: Weak (would upgrade if we see a non exec buying shares)

Heritage Oil (HOIL 337p) gushed 26¾p to 338p following a positive drilling update from the Kurdistan region of Iraq. It is the first-ever well to be drilled on the Miran licence in the region and testing is anticipated to take up to one month to complete’ (thisismoney.co.uk, market report 25 march 2009)

Oman holdings sold for $28m (Company announcement today April 8th) “This transaction demonstrates Heritage’s strategy of realising value for shareholders within the portfolio” Tony Buckingham, CEO.

In the last couple of weeks we’ve had a positive drilling report, and disposals realising value to be reinvested in core assets, yet Heritage Oil shares are trading at 337p, down a couple of % today. News in the price? Time to take profits?

Heritage Oil are up 33% absolute, and up 79% relative to the FTSE 250 index since our comment on September 21st 2008.

We said then that we had noticed two non exec directors Michael Hibberd and Gregory Turnbull buying 50,000 shares each on 5th September at 215p and 212p respectively.

Hibberd followed this up with a further purchase of 75,000 shares at 182p on September 16th, taking his holding to 300,000 shares. Hibberd must have believed Heritage Oil shares to offer value to invest around 250,000 pounds and almost double his holding.

For full comments on Heritage Oil see September 21st :  ‘Non execs build equity positions in Heritage Oil (HOIL)’

I’m happy to take profits here in light of the positive news, and the stalling share price.

View on Heritage Oil : Neutral

Caveats:

Cazenove comment as reported on FT Alphaville March 25th: ‘At 311p, Heritage is trading at a 23% premium to our core NAV. At these levels, a certain amount of bid speculation and exploration success is priced in. However, given the potential upside from a successful flow test in Kurdistan and the company’s takeover appeal, we remain with our OUTPERFORM recommendation’

Evolution comment as reported by FT Alphaville  on the same day: ‘VALUATION AND RECOMMENDATION – On 3rd March we wrote that we thought Kurdistan was a free option in Heritage’s share price with little downside risk if exploration failed. The downside appears to have been eliminated. Our old target price of 400p included a risked upside of 123p for the Miran structure based on 500m boe of recoverable reserves. Following today’s news we are raising our target price to 500p to reflect the success and the potential upside to our reserves assumption’

Tom Cross, CEO of Dana Petroleum (DNX 1223p) has a great track record- again!

Back in June last year he and a colleague, David MacFarlane exercised options and sold significant amounts of shares in Dana Petroleum (DNX, 1223p) at close to 19 pounds a share.

In the market turmoil of October Cross bought shares back at 10 pounds a share CHEAPER.

Since then the market has bounced, as has the oil price, and the shares are up 50%.

I’m sure there’s more to go, and longer term you might want to follow Cross’s lead, not mine.

But having seen great results (‘surge in annual net profit‘) for the year to December 2008 (note to self: 10 months were ‘in the bag’ when Cross and Dayer bought shares), I’m happy to take Dana off the ‘STRONG signal, ‘Directors buying’, ‘Positive’ list, with a 47% absolute return and a 34% relative outperformance against the market (FTSE 250 index).

Note of October 19th ‘CEO invests at 853p having sold at 1886p in June’:

Only last week, October 15th, followthedirectors wrote ‘Technical director thinks DANA Petroleum undervalued‘.

One day later. the CEO Tom Cross, and one of the non executive directors Philip Dayer, also bought shares in Dana Petroleum (DNX, 831p).

Non exec Philip Dayer bought 5787 shares at 864p, taking his holding to 9387 shares. CEO Cross bought 43490 shares at 853p, taking his holding to 1,044,890 shares.

So this isn’t a significant move on Cross’s part. But when you look at the $$ amount invested (GBP 370k), and the coincidental purchase of shares by three other directors in the week (Brian Johnston non exec, and Stuart Paton Technical and Commercial Director, as well as Dayer above), then Dana Petroleum starts to look interesting.

View on Dana: Neutral

For all Dana Petroleum comments see here.

It wasn’t that long ago (end of October), when Allscripts were trading at around $5, that we spotted an announcement by Misys (MSY, 124p) that their CEO, Mike Lawrie, was buying shares in Allscripts (MDRX, $10.84), the medical software group in which Misys own a majority position.  Lawrie was followed shortly afterwards in his purchases by Glen Tullman, CEO of Allscripts.

We thought this purchase in shares of a subsidiary unusual, and suspected Lawrie of believing there to be better opportunities in Allscripts than in Misys.

The WSJ’s Inside Track picked up on our story on November 5th.

Since our note of October 30th (link here), Allscripts are up 96% in absolute terms, and up 120% vs the Dow Index.

Misys shares in dollar terms are pretty much unchanged over the period.

So Lawrie was right. Very right.

Why take Allscripts (MDRX) off the positive list? Because we think the share price now matches the markets expectations in the medium term:  Q3 profits were out last week, and despite ‘better than expected results’ the stock was down 28c on the day (MSN Money).

Extract from our note of October 30th 2008:

‘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?’

View on Allscripts: Neutral

For all our earlier comments on Allscripts click here.

Directors share performances

We’ve analysed the share performance of all transactions commented on on this website.

That totals  comments on more than 100 company transactions, and over 350 transactions by individual directors, both executive and non exec, from November 2007 to February 2009.

If you had followed transactions by executive directors, where they were not accompanied by transactions by non execs, then the companies you would have bought or sold would have underperformed the market by 6%.

If you had followed transactions by non executive directors which were not accompanied by transactions by executive directors, then the shares you would have bought or sold would have outperformed the market by 9%.

These performance numbers relate to the share performance of the companies compared to the relevant index, and over the ‘holding period’, which may be from my comment to now, or earlier if I ‘closed’ the ‘view’.

The holding period amounts to very roughly 200 days, so these numbers are very significant on an annualised basis.

What about the number of directors transacting, does share performance have any correlation there?

Yes it does, a positive one. The greater the number of executive directors transacting at any time, the worse the performance. Conversely the greater the number of non execs, the better their performance.

I’ve weighted the share performance results with the number of directors transacting. The executive directors performance deteriorates by around a further 4 percentage points, and the non execs improves by a similar amount, calculated on a ‘per director’ basis.

Is this a suprise?

No, I suggested a divergence in performance of directors and non executive directors when I started this analysis 14 months ago.

Non execs have a much better understanding of the environment in which the company operates, and also of the valuation of the company shares, as they are able to ‘stand back’ and better analyse the environment.

Executive director share signals are clouded by disposals for tax, or buying shares to qualify for the incentive scheme. But they also have their noses to the grindstone, and therefore are less able to observe what is happening around them, to both their firms competitive position but also to stock market perceptions of their company’s shares.

This might also explain why so many executive directors bought into what they thought were cheap bank shares over the last 12 months. See Nils Pratleys article ‘Bankers lead way through the trap door’, which discusses this blinkered approach, and gives LTCM, Barclays and Yell as examples.

Is this a common phenomenon, or just apparent in bear markets. I don’t know. Most commentators, researchers, experts point to those with the most information, the CEOs, CFOs, making the best decisions. It may be that in recessions and bear markets, the individuals with a greater awareness are the non execs not the executive directors.

Time will tell.

If you require any further information, or would like to discuss these findings, please email me at followthedirectors@gmail.com, and I’ll get back to you.

If you manage institutional equities or hedge funds, then I am happy to provide a service analysing your equity portfolio on a regular basis.

Regards

Simon Winfield

http://followthedirectors.co.uk

followthedirectors@gmail.com

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to FurlAdd to Newsvine

Add to Technorati Favorites

Prefer to get emails? Click here

RSS Find us on twitter.com/directorsdeals

  • An error has occurred; the feed is probably down. Try again later.

twitter

April 2009
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
27282930  

twitter