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Rats come to mind whenever Rentokil is mentioned. And now sinking ships lurch in from stage left.
Rentokil (RTO, 44p) announced yesterday that on November 13th David Liu, the Divisional Managing Director of Asia Pacific, had bought 130,000 shares at 45.5p (possibly to crystallise a loss), and sold 210,000 shares at 45.5p, leaving him with no position in the ‘Royal Rat Catcher’. Liu joined Rentokil from Aegis in 2005.
Directors sales at Rentokil have been few and far between. In fact the only independent sale (not connected to an options exercise) was by non exec Peter Bamford in October 2007, when he sold 10,000 shares at 168p. Though he still holds 38,000 shares.
Executive directors purchases over the last three years carry very little weight.
Rentokil recently announced third quarter results with an update on cost cutting/restructuring progress (Telegraph comment here).
I suspect trading conditions for a service company like Rentokil can only deteriorate in this environment.
View on Rentokil- Negative- PDMR selling
Strength of Signal- Weak
September 12th: Simon Hope, Savills (SVS, 205p) Executive Director with responsibility for Capital Markets, sells 62283 Savills shares at 295p, taking his holding to 87,547 shares and raising GBP 183,797.
September 16th: followthedirectors comments: ‘Savills – further to fall – Directors sell’
October 17th : ‘Savills Says Earnings Will Miss Analysts’ Estimates’ (Bloomberg article) : ‘this year’s pretax profit will miss analysts’ estimates because of the slump in transactions caused by the credit-market turmoil.’
I know that in these markets five weeks is a lifetime, but do you not think the board of Savills have had regular discussions about the risk to their profits and earnings in their weekly board meetings?
If you had followed Savills directors dealings and the followthedirectors commentary, then this news would be no surprise to you.
Find below the performance you might have achieved if you had followed our commentary (I list here the dates of my comments, and the share price performance between them):
November 8th (followthedirectors say ‘don’t buy’). Performance to March 10th SVS down 5%
March 10th (‘results wednesday, watch out’) Performance to August 4th, SVS down 35% absolute, or down 13% relative to the FTSE 250.
August 4th (‘time to buy?‘) to September 12th, SVS up 33% absolute, or 32% relative, but Hope didn’t announce his sale until yesterday, so use August 4th to September 15th, SVS up 23% absolute, or up 25% relative.
September 16th (‘further to fall’) to today October 17th, SVS down 23%, but up 5% relative to the FTSE 250.
I would suggest that the risk in Savills remains distinctly on the downside.
For all comments on Savills click here or type Savills into the search box on the left.
When I wrote my post of September 15th ‘Hargreaves Lansdown- more selling, signal strength now STRONG’, I was unaware of the reason for so many share sales.
The reason directors of Hargreaves Lansdown (HL. 182p) have been selling is that this is the anniversary of their listing (see Citywire article here), and the lock up for part of their shares falls away.
This in my mind justifies the share sales as the directors are probably diversifying their financial assets. Although you might question whether they would all rush for the exit if there was good news ahead!
As a result of this I believe these sales have a lower value to investors, and I am moving the Signal strength indicator from STRONG signal to WEAK signal.
For all comments on Hargreaves Lansdown click here.
In HSBC (HSBA, 790p) I see a strong, well managed, diversified global bank, with a higher exposure to the growth markets of Asia than its (now nationalised) compatriots on the London Stock Exchange.
I notice though the first significant signs of Chinese slowdown in the announcement on Thursday by Australia Iron Ore producer Mt Gibson (MGX, 71c) that their Chinese customers want to delay shipments.
In their statement (link to co website) Mt Gibson say ‘ Customer and iron ore sector analysis indicates a slow down in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities’.
Whose ‘credit facilities’ I wonder, the Chinese or their Western customers?
I also notice directors share sales at HSBC, wth a DD John, a ‘PDMR’ (senior manager but not group board member) selling 61434 shares at 907p on October 1st.
Reviewing other directors sales over the past twelve months I find sales taking place at between 766p and 884p between October 2007 and June 2008 totalling around 400,000 shares or GBP 4m. Directors who have sold include Hughes Hallett (non exec), Almeida (non exec), Green (Chairman), Flint (CFO), and Geoghahan (CEO). For full details go to www.digitallook.com or to the HSBC company website.
I wonder how long HSBC can weather the storm that banks in the rest of the world are currently embroiled in. I think the price levels at which share sales by six directors took place are a good indicator of a medium term peak level for HSBC shares.
Signal: Negative- Directors selling
Signal Strength: MEDIUM
October 17: Anecdotal information on the Chinese economy from a contact in Hong Kong:
Second largest Chinese port shows exports down 14% since July.
40% of the Chinese toy companies are now insolvent.
Also see: ‘Credit crisis casts gloom over China’s exporters’ (October 14th, Associated Press)
For subsequent comments on HSBC (November 10th and November 14th) see here.
My last post listed companies selected so far this year for a high level of conviction (or Strong signal) in directors buying shares.
Below I list companies selected so far this year for directors SELLING, where I believe the actions of the directors to be a STRONG signal for investors.
Those companies are as follows (for full comment type the stock name into the ‘SEARCH’ box to the left):
De La Rue (DLAR)
Savills (SVS)
Hargreaves Lansdown (HL.)
Carnival (CCL)
3i (III)
Connaught (CNT) (switch into eaga)
Cairn Energy (CNE)
Up almost 50% from Julys low (730p), Rathbone (RAT, 1060p) (chart) are seeing a couple of their Executive Directors take advantage of a strong share price to reduce their exposure.
Richard Smeeton has sold (on 19/9/08) 12,000 shares at 1035p taking his holding to 115,673 shares, and Andrew Morris has sold (23/9/08) 11,791 shares at 1063p, taking his holding down to 41,268 shares.
Another two directors (Ian Buckley and Richard Loader) have also sold, but in much smaller size.
These trades echo selling at Hargreaves Lansdowne (see my posts here), also up 50% from the lows, where three directors continue to sell.
Four directors selling, but not a significant portion of their holding, warrants a MEDIUM strength signal. The risks lie on the downside.
Addendum October 14th:
Further sales have been reported as follows:
Clive Hexton, on the board of Rathbone Investment Management, has sold 5200 shares at 983p taking his holding to 8700 shares (October 6th), and
Hugh Adlington, at Rathbones Investment Management London, has sold 10,000 shares at 987p, taking his holding to 44,000 shares (October 3rd).
Over the last couple of weeks w’ve seen two directors selling shares in RBS (RBS, 214p):
Non exec Lawrence Fish sold 140,000 shares at 223.36p on September 22nd. This takes him to 182,309 shares. He had bought 119,000 shares in the June capital raising at 200p per share.
General Counsel and Group Secretary Miller McLean sold 60,000 shares at 248p on September 10th. He bought 526,000 shares in the June offer.
McLean owns over 1.3m shares in RBS, and Fish was recently apponted a non exec in May this year, having previously held an Executive position.
Are these share sales significant? Not yet.
Find other posts on RBS here.
Just as the central banks are ramping up the printing presses, and De La Rue (DLAR, 948p) declare a ‘strong order book’ and ‘operating cashflow remains strong’ in their pre close statement on September 16th, the CEO Leo Quinn and CFO Stephen King reduce their holdings substantially.
The statement reads fairly positively, but the one thing missing is any comment on costs. Maybe those haven’t been added up yet.
Stephen King, CFO, on September 18th sold 36907 shares at 920p, raising GBP 340k. These are the balance of the shares he exercised in July, having sold about 25,000 to pay the tax due. He is left with 46620 shares.
Leo Quinn, CEO, on September 19th sold 78500 shares at 948p, raising GBP 740k. This leaves him with 126,000 shares.
De la Rue looks to be ‘up with events’, having outperformed the FTSE 250 by 50% in the last year. I think King and Quinn might have a point here.
Value of directors dealings as a signal for investors: STRONG.
It seems to me as if Savills (SVS, 266p) are almost a second derivative on the UK housing market. Not only are there huge swings in sentiment on housing, but these seem to play out with greater amplitude in the Savills share price.
Of course Lehmans demise will impact the London housing market. Not only by Lehman redundancies, but also having all those other banks not paying bonuses for a couple of years: ‘you’re lucky to have a job, son’.
Savills directors dealings seem to be a pretty good indicator (or maybe influence) on the share price.
Simon Hope on Friday sold 62283 shares at 295p, taking his holding to 87,547 shares.
I’ve commented on him before (links to comments in blue), so let’s look at how the share price coincides with Directors activity in the sector, and my comments:
November 8th 2007: Hope sold GBP 350k (net of options exercise) of shares at 353p. I said Housebuilders- too early to buy.
March 10th 2008. I highlighted the ‘risk’ inherent in Savills shares ahead of results, using Hopes share sale in November as an indicator, by saying Savills up 50% this year, results Wednesday. Watch out.
August 4th 2008. We saw directors (Sir John Ritblat and CEO Izett) buying at Colliers Re, also in the agency/property management sector. As a result I said Real Estate agents – time to buy?
Now let’s look at the value of using these directors dealings as a signal for investors. I list here the dates of my comments, and the share price performance between them:
November 8th to March 10th SVS down 5%
March 10th to August 4th, SVS down 35% absolute, or down 13% relative to the FTSE 250.
August 4th to September 12th, SVS up 33% absolute, or 32% relative, but Hope didn’t announce his sale until yesterday, so
August 4th to September 15th, SVS up 23% absolute, or up 25% relative.
So what is the downside risk in Savills today then, and can this string of successful calls be repeated?
Between August 4th and today, Savills are up roughly 30% relative to Colliers Re. If you look at a longer term chart of these two stocks, they more or less perform in line with each other. Colliers is a little slower to move due to its illiquidity. So that’s what I think the scale of the downside risk is in Savills.
Also note that Savills have a pretty heavy cost base with 17,000 employees, versus Lehmans 28,000.
Value of Directors Dealings as a signal to investors: STRONG
Link to all my previous comments on Savills here.
followthedirectors... a study of directors share dealings 