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Over a year ago, in December 2007, the CFO of Next (NXT, 1150p) increased his holding by
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
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.
In December last year I interpreted directors buying activity in Experian (EXPN, 425p) as a STRONG signal due to the number of directors buying, their positions in the group, and the amount of capital committed to the investment. (Followthedirectors December 10th: ‘Arredondo, non exec, adds to Experian holding’)
On Tuesday December 16th we saw the first significant share sales by a Non Executive Director of Experian, David Tyler. Tyler sold 100,000 shares at 413p (Source: London Stock Exchange).
I don’t know what that takes Tylers shareholding in Experian to, but due the significant $$ value I am using the directors share sale as a signal to close my positive view on Experian.
Experian in fact are back to their December 2007 levels, but the FTSE 100 has fallen by 35%. So you have outperformed the FTSE 100 by 50%.
The signal isn’t yet of significant enough strength to warrant an outright sale on Experian.
View on Experian- Negative. Close positive view of December 10th due to director share sales.
Strength of Signal- Weak. Require more directors sales to justify a stronger signal.
To read all of Followthedirector analysis of Experian click here.
Griffiths
This is the man who called the Stagecoach (SGC 140p) share price absolutely right. Yes, that’s right, the CFO Martin Griffiths.
Since July 24th (see copy of note below) Stagecoach shares have halved in price, and are down 37% relative to the FTSE 100.
Following the recent results (‘Stagecoach to cut jobs as recession looms’– Bloomberg) I am closing my negative call with a 51% absolute return.
Can I point out to shareholders that on October 29th the company announced in their Trading Statement that ‘the outlook for the Group remains positive’ (Source Stagecoach Group website).
I might be so bold to suggest that Mr Griffiths ‘outlook’ expectation must have differed substantially from the markets interpretation of a ‘positive outlook’, and that Stagecoach failed to acknowledge and relay this difference to the market in an appropriate way. Why else would Stagecoach’s share price be down 32% since the October 29th Trading Statement?
But Griffiths’ real skill was selling shares on the realisation that things couldn’t get any better. People switching to public transport, fuel prices starting to come down, premium valuation due to ‘non cyclicality’ of the business.
Addendum Friday December 5th: Stagecoach yesterday announced two share purchases by directors as follows:
Non exec Sir George Mathewson (of Scottish banking fame) bought 35,000 shares at 139.39p on December 4th, initiating a holding.
CEO Brian Souter bought 2.085m shares at 138.96p on December 3rd, taking his holding to 106 million shares.
These purchases do not yet warrant a positive view on the stock, as in % terms Souters is too small as a proprtion of his existing position, and Mathewsons position as a proportion of his net wealth must be assumed to be very small.
Followthedirectors.co.uk Note of July 24th 2008:
”Stagecoach – CFO Griffiths thinks it’s time to take profits‘
Martin Griffiths, CFO of Stagecoach (SGC 275p) is taking his money off the table.
As at the beginning of June he held Executive Share Options over 479,000 shares, with varying exercise periods, starting in June and December 2006 and December 2007, and extending mostly to June 2010, with some as far out as December 2011 (Annual report).
Griffiths exercised all 479,000 between 26th of June and 8th July this year, which cost him £365k.
He sold all of them them on the same dates, realising £1379k, a net £1m in his pocket.
Why do I think this significant?
- He had another 2-3 years before he needed to exercise these options, but chose to exercise and sell now.
- This 479,000 shares is the total amount in his Executive Share Option pot*. Griffiths today owns less than 20,000 shares.
- When exercising options, directors usually sell sufficient to pay the tax man and hold on to the rest. Not in Griffiths case. He has exercised and sold the lot.
Griffiths behaviour and the subsequent risk profile of his remaining ‘Plan’ shares indicates to me that the risks to the Stagecoach shares outweigh the medium term returns. So I’d follow Griffiths and take some money off the table too.’
Follow up on our HSBC call of October 12th:
Recent negative newsflow for HSBC (HSBA, 702p) is now mostly in the price.
‘The extent of the slowdown in the Chinese economy became clearer on Thursday when the government disclosed that the rate of increase of industrial production had dropped to the lowest level in seven years’ (Source- FT.com November 13th 2008).
The FT goes on to say ‘Four days after unveiling a massive fiscal stimulus programme, the government said that industrial production increased by 8.2 per cent in October – well below forecasts’.
I suspect that the market now knows much (if not all) of what the HSBC directors knew back in early October when they sold their shares (see followthedirectors comment of October 12th ‘ HSBC- Directors Sell- ‘Credit tightening’ now hitting China growth’).
In the four weeks since our October 12th comment, HSBC are down 10% while the FTSE 100 is up 9%.
For all our comments on HSBC click here.
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
On April 25th we saw Samir Brikho, CEO of Amec (AMEC, 525p), increasing his holding by 50% and investing close to GBP 500k ‘Amec– a difference of opinion CEO buys, CFO sells.’
On Friday October 10th Brikho bought a further 50,000 shares at 497p, investing GBP 250k, taking his holding to 232,000 shares.
Other directors have also been active:
October 7th Non executive Tim Faithfull buys 5000 shares at 533p, doubling his holding to 10,000 shares, and
October 8th, Jock Green-Armytage, Non executive Chairman, increases his holding by 50% by buying 5000 shares at 509p.
Also in September Ian McHoul, the new CFO, bought 9000 shares at 746p to take his holding to 60,000 shares.
In the three months after Brikhos April 25th purchases, Amec outperformed the FTSE 100 by 30%. They have now given up all that outperformance against the index, and with the share price near 500p represent another opportunity.
View of Directors dealings: Positive signal with three directors buying in the last week.
Strength of signal: Remains STRONG
For all Amec comments click here.
followthedirectors... a study of directors share dealings 