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Savills update:
There is no new news at Savills (SVS, 252p), save improving sentiment on UK rate cuts, which has resulted in great share performance (up 16% re FTSE 250 since Savills director Simon Hope sold shares on September 12th, and up 14% relative to the market since the group announced a profit warning on October 17th).
I do however expect a pre close statement from Savills next week, as the ‘Interim Management Statement’ [Profit warning] of October 17th was related to ‘recent weeks ….transaction volumes’, and two months in this market is a long time.
The other risk that arises comes from the ‘stepping down’ of the Finance Director Mark Dearsley, in what must be financially pretty stressful times for a business geared to transaction volumes. ‘His exit will mark the second departure from Savills this year and comes just weeks after the company issued a profit warning’ (Reuters November 26th).
So I stick to my guns on Savills, noting that four directors have sold shares between 295p and 359p this year, and that the risks remain on the downside.
For all previous comments on Savills on this website, including directors share sales and the profit warning, click here.
View on Savills – remains negative
Strength of Signal- Remains STRONG
The CFO of John Wood Group plc (WG. , 185p), Alan Semple, yesterday bought 50,000 shares at 166p, taking his holding to 1.164m shares.
Whilst this of itself is not significant, there are a few factors which continue to support a positive view on John Wood :
- Semple sold 92,000 shares in April this year at 453p. This is his first transaction since then.
- Sir Ian Wood, Chairman, also invested in John Wood last week, buying 500,000 shares at 164p on December 5th, taking his holding to 31.1m beneficial and 60m non beneficial.
- Six other directors have bought shares, in October. In total 8 directors have bought 1.296m shares in the last six weeks, investing over GBP 2m between them.
- The ‘Full year trading update’ is to be announced on the 17th of December.
Our last comment on John Wood Group was on October 28th at 179p ‘Four directors have invested over GBP 1m in the last week’. Within a week John Wood shares were trading 100p higher, helped by a big bear market rally.
I expect a positive, reassuring statement next week.
Positive view, encouraged by a STRONG signal.
Sources: Company website, London Stock Exchange, Digitallook
Mr Howard Covington
Chief Executive
New Star Asset Management Ltd
1 Knightsbridge Green
London
SW1X 7NE
4th December 2008
Dear Mr Covington,
I’m at a loss to understand several actions of New Star Asset Management Ltd’s management over the last 18 months. Namely the following:
1. Why did New Star leverage the balance sheet through a cash distribution of GBP 363 million, resulting in greater risk for shareholders, when your own leading indicator pointed to increased risk of an economic slowdown or even a recession?
‘..New Star’s leading indicator of global monetary conditions turning negative. This indicator ……has turned negative before the 10 downswings within the G7 since 1965- either economic growth slowdowns or full-blown recessions’ (John Jay- Director, New Star Asset Management, Newsletter ‘Investment Star January 2007’).
2. Why did New Stars directors not address the cost issue earlier, in view of the concerns over corporate indebtedness expressed by your own fund managers?
Jamie Allsop, Hidden value Fund Manager: ‘Companies with high levels of debt or leverage are going to find it difficult as interest rates rise further’
Richard Lewis, New Star European Leaders Fund Manager: ‘Higher bond yields and tightening credit markets are posing a challenge to financials and highly indebted companies, and the fund has being avoiding them’.
Theodora Zemek, Fixed Interest Fund Manager:‘The fund … was structured to reflect awareness that the economic cycle was maturing. Positions were, therefore, taken in more senior bonds issued by companies with reliable earnings and balance sheets that were not aggressively leveraged’. (All quotes are from the July 2007 New Star newsletter ‘Investment Star July 2007’)
3. Why did New Star Management fail to explain to shareholders the risks to the business of falling revenues and a high level of debt? The issue of a high level of debt within the business wasn’t highlighted by management until November 14th.
29th August 2008 John Duffield, Chairman, says in the Interim Results to June 30th:
“As expected, the first half of 2008 was a difficult period for New Star. The trading environment remains difficult and we do not expect conditions to improve in the immediate future.
“We remain confident that through a combination of investment performance, marketing and service we can return over the medium term to generating significant value for our shareholders. We believe the long-term outlook for our company is good.” [my bold]
No comment on debt at New Star except this: ‘As we signalled in January, we intend to continue using our cashflow principally to reduce further our net debt, which had been reduced to £241 million by the end of June.’ (Source- Company website)
14th November 2008. Interim Management Statement [debt issue moves up the agenda]
‘New Star has agreed with its bank syndicate that the financial covenants in respect of its debt should be amended to better accommodate the current unsettled trading environment. This amendment has immediate effect. As a consequence of the amendment the interest rate on New Star’s debt has increased by 1.5%. The debt remains repayable in a single payment in June 2013. New Star has not at any time been in breach of its financial covenants.’
‘Our banks understand our position and are supportive.'( Source- Company website)
21st November 2008. Company announcement on Reorganisation [only a week after Interim Management Statement debt issue now top of the agenda]
‘We announced in our interim management statement that we had successfully negotiated with our banks to amend our banking covenants. This was an important and positive step forward for our company. Following that announcement we are moving swiftly to restructure our fund management activities in response to the bear market and to specific areas of underperformance’. [this relates to fund performance, not something that can be changed overnight, but will take months and years to resurrect]
3rd December 2008. Company announces Capital Restructuring
‘New Star announces a proposed Restructuring that will result in £240 million of its £260 million of gross debt being converted into equity .
New Star currently has £30 million of cash so that, if the Restructuring were effective today, New Star would be left with net cash.
New Star’s bank syndicate will own 75% of New Star’s enlarged fully diluted ordinary share capital and £94 million out of £100 million of new convertible redeemable preference shares to be issued by New Star.
New Star intends to de-list as part of the Restructuring’ [sorry shareholders, you’ve been screwed]
4. Mr Covington, why on September 9th 2008 did you sell 2 million shares at 100.6651p, more than 40% of your holding, leaving you with 2.8m shares (Source: London Stock Exchange, Digitallook). Do you think Mr Duffields statement of August 29th (above) was overly bullish, and not reflecting the true risks at New Star Asset Management?
I look forward to your response.
Regards,
Simon Winfield followthedirectors.co.ukEaga (EAGA, 112.5p), the UK heating system provider for social housing, has announced that the CEO and CFO are each selling 1.1m shares ‘to satisfy tax liabilities incurred at IPO which are due shortly, ……..and to provide an element of liquidity‘ (Company statement November 25th, source London Stock Exchange).
In April eaga directors bought shares, taking advantage of a depressed share price resulting from costs concerns primarily related to copper prices. This prompted us to look at eagas valuation, and its comparison with Connaught (CNT, 366p), a similar company, where directors had been selling shares.
Since April 30th ‘Connaught (directors selling) vs Eaga (directors buying)‘ Eaga are down 13.5%, the FTSE 250 index is down by over 40%, and Connaught are down 8.67%.
If the CEO and CFO are selling shares, then maybe we should also.
So we close our positive view on eaga with a 27% relative performance vs the FTSE 250, and a -5% relative performance vs Connaught.
View on eaga- Negative – directors selling shares.
Strength of signal- Medium
For all followthedirectors comments on eaga click here.
Share transactions:
John Clough CEO sold 1.1m shares at 110p taking his holding to 5.236m shares.
Ian McLeod CFO sold 1.1m shares at 110p taking his holding to 3.982m shares.
I’m sure Jonathan Davie wouldn’t appreciate the term ‘veteran’, but having entered the world of stock-jobbing with the firm of George Hill on the Stock Exchange floor in 1969, I’m happy to classify him as one of the more experienced men working today, with three, now four, bear markets under his belt.
I’ve worked with Davie, the Non Executive Chairman at IG Group (IGG, 211p) before. Apart from being a charming gentleman, he knows the markets well, and has unbridled passion for them too.
So his purchase of 90,000 shares in IG Group at 183p last week, post the pre close update, results in IG going on my watchlist. Davie now owns 1m shares in IG, so on a relative basis this is just a toe in the water for him.
Davie sold 880,000 shares when the going was good, between October 2006 and March this year, at an average price of 311p. He was bettered in his sales only by his Chief Operating Officer Peter Hetherington, who sold almost 40% of his holding, or 1m shares, at 400p in October 2007, within 7% of the all time high achieved the same month.
The press and the market were pretty critical of IG’s pre close statement last week, with the shares falling by almost a quarter. Of particular concern was the leap in bad debts, which IG said “relate to a small proportion of the client base”, and 80% of them were said to occur in the October mayhem (Telegraph Questor November 20th). Could this repeat itself? Sure, why not. But I’m sure IG have learnt from this.
What would I like to see to become more positive?
1. Davie buying more shares. He realised GBP 2m through his sales, and has reinvested less than 7% of that.
2. COO Peter Hetherington buying shares. He gets full marks for selling at the top. I’m happy to wait for his buy signal too.
View on IG Group- Positive, director buying shares
Strength of signal- Weak, only one director buying, and in relatively minimal size.
IG Group go on the watchlist.
See also note of January 20th : ‘Burberry Delights’.
Last week Burberry (BRBY, 170p) warned ‘of tough conditions going into Christmas’ (Telegraph 18 November).The shares fell 12%, and then management started buying.
A mixed message you think?
Angela Ahrendts, Burberrys CEO, says ‘We’ve seen it all’. She refers to having a very seasoned management team, and plenty of experience of tough times: SARS, 9/11, Asian crisis.
Ahrendts herself has plenty of experience, having held senior positions at Donna Karan, Henri Bendel and Liz Claiborne before landing as CEO at Burberrys in October 2005, taking the place of Rose Marie Bravo who resurrected the brand.
Do Ahrendts team believe they can battle it out?
It seems so. John Peace (Chairman), Joy Frommer (PDMR) and Pascal Perrier (President Asia Pacific) have all joined Angela Ahrendts in buying shares on November 20th and 21st, investing almost GBP 400,000 between them, at prices between 172p and 174p, and increasing their holdings by an average of 40%.
They were joined by three of the four non execs, Bowman, Tyler and Carter, who invested about GBP 74,000 between them, increasing their positions by an average of 80 odd %, and paying between 176p and 184p on November 19th.
The only exec board member who didn’t buy shares was CFO Stacy Cartwright, who may still be suffering shellshock from having paid just shy of 500p five months ago. Ahrendts paid the same price for 135,000 shares.
In hindsight, the best sales of stock were made by Rose Marie Bravo, as she managed her exit from the group, selling 4 million shares at 421p and 446p between July 2005 and July 2006.
The worst purchases were made by Ahrendts and Cartwright in June 2007, when they paid within 3% of the all time high, buying 82,000 and 37,000 shares respectively at 701p. Cartwright wisely cut her losses, selling at 659p within two months.
I feel happier with these purchases than I did when Ahrendts paid 496p in June, because they are supported by other board members, both executive and non executive directors, as well as two senior managers of the group.
View on Burberry: Positive- directors buying shares
Strength of Signal: STRONG- Five directors of seven buying shares. Increase in shareholding averages above 40%.
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
followthedirectors... a study of directors share dealings 