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The CFO of Tesco (TSCO, 365p), Lawrie McIlwee, last Thursday May 28th sold 36,282 shares in the multinational retailer at 370p, taking his holding to 18,000 shares.
We remembered some other recent sales, as a result of Options Exercises. In both cases all of the shares exercised were sold, which we interpret as negative on the basis that it results in a net sale of shares. If the directors had sold only sufficient shares to pay their tax and national insurance liabilities, then the transaction would be viewed as neutral.
On May 12th the IT director Philip Clarke exercised and sold 332,000 shares at 351p, leaving his holding unchanged at over 650,000 shares.
On May 19th Tim Mason, the President and CEO of the US operation, Fresh and Easy, exercised and sold 247,000 shares at 355p, leaving his holding unchanged at 678,000 shares.
View on Tesco: Negative (Directors selling shares)
Strength of Signal: Strong
(source: London Stock Exchange)
We made some money out of Experian (EXPN, 474p) after buying in November 2007 following directors purchases. We took profits in December 2008, follwing a share sale by non exec David Tyler, recording a 50% outperformance relative to the FTSE 100 share index.
Since then however, Experian shares have continued to perform well, rising by 13% with the market only just in positive territory, rising a paltry 1.6%.
Two transactions on May 20th and 21st have caused us to be more cautious on Experian:
- John Peace, the Chairman, has exercised options over 353,000 shares and sold them all, realising 1.75m pounds. He maintains his position at 1.1 million shares.
- David Tyler, the non exec who sold shares in December, has sold a further 100,000 shares at 479.55p.
View on Experian: Negative, Directors selling shares
Strength of Signal: Strong
The CEO of Pace (PIC, 177.5p), Neil Gaydon, last week exercised options on 850,000 shares at between 63.5p and 74.25p, then sold all 850,000 shares at 177p (May 13th, source London Stock Exchange).
Gaydon continues to hold 41,000 shares and have options over a further 2.3 million shares. We looked back to see if Gaydon had a track record in share transactions, and found some interesting disclosures.
Pace shares were trading at below 40p in June 2006, and ran to a high of 130p 12 months later.
Gaydon and his colleague Anthony Dixon, the Pace Company Secretary, exercised options and sold all their shares in July and August 2007, at prices between 108p and 115p.
Pace shares reached a low again of 35p in November 2008, and have rallied strongly to a high of 186p at the beginning of this month.
Gaydons recent Options Exercise and Sale of all the shares was accompanied again by Anthony Dixon, who sold 135,000 shares at 170p, and also by Chief Operating Officer David McKinney, who sold 250,000 shares at 141p (sales executed between 29th April to 12th May 2009)
We view at share sales following options exercise as follows:
Retention of all shares: Positive ( a net investment by the director)
Sale of sufficient shares to pay for tax and social security: Neutral (no net in- or di-vestment)
Sale of all shares: Negative ( a net disposal by the director)
Pace shares have been hugely volatile, and we think these Directors Dealings are worth listening to.
View on Pace : Negative (Directors selling shares)
Strength of Signal: Strong (based on individuals track record)
John Jackson, Non Exec Director of The Restaurant Group (RTN, 157p), and CEO of Jamie Oliver Holdings Limited, prompted us to reiterate our positive signal on The Restaurant Group shares when he tripled his holding on October 20th by buying 200,000 shares at 104p (‘The Restaurant Group Non Exec trebles holding‘).
In March 2008 five directors invested gbp 400k, increasing their positions by between 15 and 50%. This prompted us to view the signal from director dealings as Positive, and of high value (‘STRONG’). See our March 14th comment: ‘Consumer stocks at risk? Not TRG according to directors’.
Jackson this week (May 8th) sold ALL his holding in The Restaurant Group, 300,000 shares, at 161.84p.
This share sale causes us to take profits on The Restaurant Group.
Share performance since March 14th 2008: Shares are up 14% absolute, or up 42% relative to the index (FTSE 250).
Share performance since October 22nd 2008: Shares are up 34% absolute or 10% relative.
View on The Restaurant Group: Negative
Strength of Signal: Medium
For all comments on The Restaurant Group click here.
On October 31st we noticed a significant jump in the ratio of companies in the FTSE 350 index exhibiting share purchases by directors.
Companies in the index which exhibited net Purchases by directors (cumulative gbp50k+ in the month) vs Sales had moved from evens to as high as 10:1. (See October 31st post: Directors ARE buying shares- Buys outnumber Sells 10:1).
Since October 31st the FTSE 350 index is up 21.5%.
Companies featuring on the followthedirectors ‘STRONG’ signal list as at October 30 2008 have outperformed their relevant stock market indices by over 10% over the period.
Over the subsequent months, the ratio of directors buys versus sells has dropped as follows:
Month ratio of Buys to Sells in FTSE 350 index
October: 10 : 1
November 2.75: 1
December 1.3: 1
January 1.15: 1
March 1.0: 1
April 0.56:1
I’m not too surprised by the falls in directors share purchases, but the latest data point showing Sells outnumbering Buys by almost 2:1 sends a clear signal, and a bit of a shiver up the spine: Directors think shares are expensive.
If we analyse directors dealings by market segment, then we find that in the FTSE 100 stocks, sells in April outnumber buys by 12:8. yet in the FTSE Small Cap index, directors appear still to be buying, with buys outnumbering sells by 5:1. This ratio hasn’t changed since October, when the ratio was similar. It jumped to 7:1 in November.
The last time we saw Buys below Sells was for the month of June 2007, when the ratio dropped from evens in May to 0.8 in June. Wasn’t that the month the stock market peaked?
We all love to see a stock market recovering, but I personally am taking some money out, and looking for signals when directors start buying again.
‘Sell in May and Go Away’? Read John Mauldins thoughts on http://www.frontlinethoughts.com/index.asp. He analyses May to October share market performance in secular bear markets. Not a pretty picture.
See also The Pragmatic Capitalist: ‘Insider Buying non existent’ [good chart here].
Forbes suggest in ‘When Insiders Sell‘ that we shouldn’t worry too much about the spike in Insider selling, that it could be down to Directors being ‘too leveraged’. [hat tip to FT Alphaville]
For our previous views on the Market, please click on the ‘Market Musings’ tab to the left of this post, or here. This is where you will find the following posts:
April 2nd: Non execs make better investors- by far.
February 4th: Directors buying interest falls away in a sideways market.
December 16th: Directors buying waned in November
October 31st: Directors ARE buying shares- Buys outnumber Sells 10:1
Source: The excellent website ‘www.Digitallook.com‘ is the source of information for the Directors Dealings Buy/Sell ratios given above.
See also Ockham Research : “Insiders are selling into the rally” (April 24th)
followthedirectors... a study of directors share dealings 