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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historic performance jumps to + 16% (followthedirectors analysis of transactions of 350 directors over last 14 months-unpublished).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)

A reader asked me whether the recent share purchases in Robert Walters were significant.

This is my response:

Re Robert Walters Directors Share Purchases.

The share purchases you refer to took place on March 20th and are by CEO Robert Walters, who bought 143,000 shares at 82p taking his holding to 2.3million (excluding any options), COO Giles Daubeney, who bought 48,000 shares at 82p taking his holding to 1.66m, and CFO Alan Bannatyne, who bought 18,000 shares taking his holding to 108,000 shares.

Are these a good indicator of likely future share performance?

Long term (2+ years), I’d say yes.
Walters and Daubeney have a good track record, in that they sold respectively around 4.2m shares at prices between 246p and 360p, and 1.6m shares at between 246p and 368p, over the 16 month period between May 2006 and September 2007. The shares reached a high of 393p in July 2007! (source http://www.Digitallook.com)

So judging on historical performance, you can see these guys got out when the going was good! Does that mean it’s rightfor you and me to be buying the shares now?

First, let’s look at the sales. They took place over 16 months. They were consistent and measured. You’d probably need to assume that the buying by Walters and Daubeney that started in February 2008 might also go on for more than a year.

Secondly, is it possible to call the bottom. No. Walters and Daubeney bought shares at 150-151p in February 2008 (460,000 shares and 216,000 shares respectively).
Walters also paid 90p in November 2008. If you look at the specific purchases from last week, they are a small incremental financial commitment to already significant positions, and therefore do not signal any near term positive news. If they had increased their holdings by 20-30% that would be a different matter.

Thirdly, my analysis of 357 directors transactions over the last 15 months shows that Executive directors transactions have performed pretty much in line with the markets (-1.5% relative), whereas non executive directors have outperformed the market by 6.7 % (relative).

When Executive Directors purchases are supported by Non Executive directors purchases, the relative share performance improves substantially.

So if you are looking to buy shares in Robert Walters, wait for a non executive director purchase to complete the signal.

Regards,

Simon Winfield

From November 2007 to September 2008, directors of TT Electronics (TTG, 45p, Small Cap)  bought roughly 200,000 shares.

In October 2008 the activity accelerated, with five of the groups seven directors buying over 1.3m shares.

The directors dealing activity exhibited other favourable characteristics such as a significant % increase in shareholdings of the directors who bought shares.

John Newman, Chairman, bought 1.25m shares at 47p taking his holding to 10.8m shares.

Shatish Dasani, CFO, bought 35,000 shares at 48p, taking his holding to 100,000 shares.

Sean Watson, a non executive director, bought 55,000 shares at 46p, taking his holding to 62,000 shares.

David Crowther, another non exec, bought 20,000 shares at 47p, taking his holding to 40,000 shares.

James Armstrong, the Corporate Development Director, bought 21,000 shares at 44p, taking his holding to 71,000 shares.

TT make sensors and systems for the defence, aerospace, automotive markets, as well as telecoms and industrial electronics (company website). 

This rings a bell to remind us of the aggressive directors buying in the engineering stocks (see ’25 directors buy shares in UK engineering companies‘ October 28th followthedirectors.co.uk)           ).

Next news? With a December year end, we may see a pre close statement in the week before Christmas.

View on TT Electronics: POSITIVE- Directors buying shares

Strength of Signal : STRONG– Five directors buying, average incraese in position above 50%, in the region of GBP 500k invested, potential good (reassuring might be more appropriate in these times) news ahead.

The Restaurant Group (RTN, 117p) has outperformed the FT Small Cap by 20%, or the FT All Share by 15% since it was written up here on March 14th : ‘Consumer stocks at risk? Not TRG according to directors‘.

When impressive interim results were announced in August, analysts warned of the impact of cost pressures on the group: ‘Frankie and Bennys profits surge comes with a warning’ (Scotsman 30/8/08). Maybe with collapsing commodity prices those cost pressures are now turning into benefits?

Our opinion on The Restaurant Group remains positive, and is reinforced by the purchase of 200,000 shares at 104.2p on Monday October 20th by John Jackson, a non executive Director, trebling his holding to 300,000 shares.

Opinion on Restaurant Group: Positive

Strength of Signal: Remains STRONG

Axis Shield (ASD, 307p) (website) is an old favourite of mine. I met the company, and at the same time noticed directors buying in Spring 2005 at prices almost double where they were a year earlier. The stock then continued to perform, moving up 50% within months.

Now I see that Erik Hornnaess, a non exec director but previously Chairman of Axis before their merger in 1999, has been buying shares which have outperformed the market by 40% so far this year.

Between September 3rd and 15th, Hornnaess has bought 20,000 shares at 320p, taking his holding to 125,961 shares. Four of his colleagues had earlier this year (January to April) also bought shares, all around the 270p level. They are Keen (non exec Chairman), McAndrew (previously non exec Chairman), Hermansen (CFO) and Gilham (CEO).

Signal strength: MEDIUM

This is a small cap company with a market cap of only GBP 150m. Be patient and you will be rewarded.

Chime Communications (CHW, 129p) have seen three directors buying shares this week.

Satterthwaite (CEO), Bell (Executive Chairman) and Smith (CFO) between them bought 91,000 shares at between 120 and 122.5p.

Despite the positive comments from Questor in March (see below), I consider these purchases as a MEDIUM signal as they average an increase in existing shareholdings of the three directors of only about 22%, yet three directors bought shares.

Questor March 16th 2008:

Having delivered on its previous targets, Chime has set another seven, including boosting average fees per client, margins, and the proportion of revenues it derives from emerging markets. It is doing so, founder Lord (Tim) Bell said in a climate where it has seen “no sign of any slowdown”. Indeed, he set out 10 reasons to be cheerful, although investors failed to look on the bright side and marked the shares down heavily on the day the results were released.

Questor thinks that was harsh. The company has a strong balance sheet, an excellent outlook and the shares trade on a significant, but unwarranted discount to the rest of the battered media sector.’

Findel (FDL, 244p) directors have accelerated their buying activity this month. Chapman (Exec Chairman) and Craig (non exec) this week bought almost 130,000 shares between them, investing over £300k.

Over the course of May six directors out of a total of nine have increased their positions by an average of 58% by investing over £1m between them.

The consistency of purchases across the board, the amount of money invested, and the average % increase in directors shareholdings means that the signal given by these directors is a STRONG signal.

Despite warning that 2008 will be a difficult year (see Scotsman article of May 9th here), BPI or British Polyethylene (BPI, 242p) Chairman Cameron McLatchie continues to buy.

His major issues are weak sterling and rising oil prices (see BPI website for full statement). Maybe he believes BPI can cover some of this increased cost through ongoing cost cutting.

I give him credit for having sold within a whisker of the high of BPI, selling 300,000 shares at 637p in March and April 2006. The shares reached a high of 715p. And recently reached a low of 227p.

McLatchie has bought over March and May this year so far a total of 150,000 shares at between 235p and 238p, taking his holding back up to 462,000 shares.

This will no doubt be a long term investment for him, and for me if I choose to follow him. And possibly pretty volatile too as I haven’t a clue where oil prices are going, do you?

Back in December I got all excited about Patrick Jollys lone purchase of 25,000 shares at 585p in Findel (FDL, 280p) (see my December article here). Since then the retailing economy in the UK has turned down, and Findel warned about an increase in bad debts. The share price is now £3 lower.

Just last week we had a reassuring set of results from Findel.

And since then four members of the board have been buying shares:

Patrick Jolly (CEO) has invested £21k at prices between 283 and 288p.

Anthony Johnson (Non exec director) has invested £58k at 292p.

Keith Chapman (Exec Chairman) has invested £740k at 296p, and

Ivan Bolton (Co Secy) has invested £33k at 272p.

All these purchases were made between the 15th and 19th of May, after the company declared results on the 15th of May.

I think four investors buying is a better signal than one.

Investing six times the money between them that Jolly did in December.

At half the price too!!

I’m astounded. CEO Brewer, Chairman Waldron, and CFO Wilson each bought around £200k in shares at 393p on 13th or 14th May.

Then today, the 15th May, Headlam (HEAD, 396p) announce Interim results. I’m not a regulator or a lawyer, but shouldn’t these guys wait until after the results before buying shares?

Enough said.

Floor coverings, mostly UK, sales up like for like, margin up, positive outlook – IN FLOOR COVERINGS !!

Directors have added to existing positions in Headlam by between 11% and 16%.  Not huge, but worth noting. The £200k cost to each of them though is significant.

Headlam is a tiddler covered by only a couple of brokers, so I think the signal generated by director buying is significant.

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