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We’ve found that non execs outperform execs by somewhere between 7% and 11% amongst the directors dealing transactions we have observed over the last 18 months. We are unsure as to whether this outperformance is a feature of bear markets, or will continue when share markets are rallying.

Our thesis when we started followthedirectors was that non execs would have a better ‘handle’ on both valuations and the competitive and economic environment due to their involvement in  activities outside the firm on whose board they sit.

A few transactions over the past week where only non execs have been buying shares are worth noting as follows:

Vodafone (VOD, 116p)

announced that on May 22nd that Sir John Bond, the group Chairman, bought 100,000 shares at 116p, taking his holding to 337,000. We looked back at recent history, and found another non exec, Luc Vandevelde, buying 32,500 shares at 120p on March 24th, taking his holding to 72,500 shares.

View on Vodafone : Positive                   Value of directors dealings signal: High/Strong

Eaga (EAGA, 127p)

saw two purchases ny non execs last week, namely Roger Ayland and Malcolm Simpson, who bought 50,000 and 8,000 shares respectively, at around 120p, taking their holdings in the energy efficiency company to 50,000 and 96,000 shares respectively.

View on Eaga : Positive                              Value of directors dealings signal : High/Strong

QinetiQ (QQ., 146p)

last week announced share purchases by non execs Nick Luff and David Lees. Luff bought 20,000 shares at 141p, taking his holding to 70,000 share, and David Lees bought 10,000 shares at just over 144p, taking his holding to 83,000 shares. Back on the 12th of March, the CEO Graham Love had bought 100,000 shares at 141p, pushing his shareholding to over 5 million shares.

Sir John Chisholm, the Executive Chairman, called the top on QinetiQ when he sold 1.5 million shares within 8p of the high, at 220p, on 27th August last year. 

View on QinetiQ: Positive                  Value of directors dealings signal: High/Strong

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)

I’m thinking of taking some profits on 3i (III, 400p) (theoretical ex rights price 250p)

There will be no new news from this private equity group until the Interim Results, which are to be released in July, maybe with the AGM which is on July 8th (company website Financial calendar http://www.3igroup.com)

In reviewing the media on 3i I’ve come across a few ‘soundbites’ which are worth noting:

May 11th in a CNBC interview 3i Group Communication Director Patrick Dunne admitted the rights issue to be opportunistic: ‘we don’t need the money’.

He then went on to say that private equity valuations were ‘not quite at the go-shopping point’ yet. He also suggested that the target return of 20% was ‘being reviewed‘, that the returns ‘would be much more volatile going forward‘.

I was also drawn to a couple of questions in an article by Simon Nixon at the WSJ, also on May 11th: ‘investors need to ask themselves two questions: Has 3i sufficiently written down its existing £8 billion of assets under management, including £4 billion on its own balance sheet? And will future returns be sufficient on a risk-adjusted basis?’

3i shares are up 94% absolute or 74% relative to the market since our comment of February 25th ‘3i – Five of the seven non execs have bought shares in the last month’.

I’ve sold today half my position in the group.

For all followthedirectors comments on 3i click here.

In our analysis we have found non execs to substantially outperform executive directors when it comes to dealing in shares in their own company, to the tune of around 12-15%.

For further information on this see our post of April 2nd: ‘Non execs make better investors- by far’

There are a few recent transactions worth pointing out because they are by non execs only:

Homeserve (HSV, 1337p)

After announcing a proposal to divest of its  UK Emergency Services business this week, non execs Mark Morris and Andrew Sibbald each bought 2000 shares in the group, at 1278p and 1244p respectively, on the 22nd May and the 20th May respectively.

They each now hold 2000 shares.

Genus (GNS, 616p)

The animal breeding group have seen purchases by three non executive directors this week. On Monday the Non executive Chairman John Hawkins bought 1000 shares at 576p, taking his holding to 5100 shares. Mike Buzzacott bought 1000 shares at 578p, taking his holding to 1000 shares.

And on Tuesday Barry Furr bought 5000 shares at 600p, taking his holding to 8000 shares.  There are no imminent financial results due, but there have been bid rumours in Genus in the past. See our post of October 16th ‘Genus breeding positive directors’.

National Grid (NG., 587p)

Three non execs have bought into National Grid shares. Bob Catell, also a Deputy Chairman, bought 10,000 shares in ADR form, investing about 80,000 pounds, and taking his holding to 50,000 shares (May 21st).

On May 14th, John Allan and Philip Aiken paid 580p for shares, Allan buying 5000 and taking his holding to 7000 shares, and Aiken buying 1500 shares and now owning 3500 shares. The Questor article of May 14th is worth reading.

View on the above: all Positive (directors buying)

Strength of Signal:  all Strong (only non execs buying)

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:

  1. 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.
  2. 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

pacelogo 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)

Tom Cross, CEO of Dana Petroleum (DNX 1223p) has a great track record- again!

Back in June last year he and a colleague, David MacFarlane exercised options and sold significant amounts of shares in Dana Petroleum (DNX, 1223p) at close to 19 pounds a share.

In the market turmoil of October Cross bought shares back at 10 pounds a share CHEAPER.

Since then the market has bounced, as has the oil price, and the shares are up 50%.

I’m sure there’s more to go, and longer term you might want to follow Cross’s lead, not mine.

But having seen great results (‘surge in annual net profit‘) for the year to December 2008 (note to self: 10 months were ‘in the bag’ when Cross and Dayer bought shares), I’m happy to take Dana off the ‘STRONG signal, ‘Directors buying’, ‘Positive’ list, with a 47% absolute return and a 34% relative outperformance against the market (FTSE 250 index).

Note of October 19th ‘CEO invests at 853p having sold at 1886p in June’:

Only last week, October 15th, followthedirectors wrote ‘Technical director thinks DANA Petroleum undervalued‘.

One day later. the CEO Tom Cross, and one of the non executive directors Philip Dayer, also bought shares in Dana Petroleum (DNX, 831p).

Non exec Philip Dayer bought 5787 shares at 864p, taking his holding to 9387 shares. CEO Cross bought 43490 shares at 853p, taking his holding to 1,044,890 shares.

So this isn’t a significant move on Cross’s part. But when you look at the $$ amount invested (GBP 370k), and the coincidental purchase of shares by three other directors in the week (Brian Johnston non exec, and Stuart Paton Technical and Commercial Director, as well as Dayer above), then Dana Petroleum starts to look interesting.

View on Dana: Neutral

For all Dana Petroleum comments see here.

It wasn’t that long ago (end of October), when Allscripts were trading at around $5, that we spotted an announcement by Misys (MSY, 124p) that their CEO, Mike Lawrie, was buying shares in Allscripts (MDRX, $10.84), the medical software group in which Misys own a majority position.  Lawrie was followed shortly afterwards in his purchases by Glen Tullman, CEO of Allscripts.

We thought this purchase in shares of a subsidiary unusual, and suspected Lawrie of believing there to be better opportunities in Allscripts than in Misys.

The WSJ’s Inside Track picked up on our story on November 5th.

Since our note of October 30th (link here), Allscripts are up 96% in absolute terms, and up 120% vs the Dow Index.

Misys shares in dollar terms are pretty much unchanged over the period.

So Lawrie was right. Very right.

Why take Allscripts (MDRX) off the positive list? Because we think the share price now matches the markets expectations in the medium term:  Q3 profits were out last week, and despite ‘better than expected results’ the stock was down 28c on the day (MSN Money).

Extract from our note of October 30th 2008:

‘Mike Lawrie, CEO of Misys plc (MSY, 118p), and Chairman of Allscripts after Misys completed a purchase of the majority of the shares in the company, has bought 70,000 shares in Allscripts at $5.0921 (27th October- source London Stock Exchange– type MSY into Code box).

Lawrie already has a $1m shareholding in Misys (excluding his share options and performance plan shares). Does he now think Allscripts is the cheap (er) way to invest in the group?’

View on Allscripts: Neutral

For all our earlier comments on Allscripts click here.

Mixed messages me thinks on IG Group (IGG, 183p)

January 20th 2009 saw a presentation and announcement by IG Group for the six month period to end November 2008  (can be found on company website), from which I have copied the following phrase:

‘trading since the period end has continued to be strong’

This was supported by presentations and discussions with investors and brokers, in the vein that activity continued to be strong due to the high level of volatility in the market.

March 10th 2009, in an ‘Interim management statement’ , IG Group said that

‘growth against very strong comparatives, is challenging (in UK and Australia)’

‘overall growth of the Group is impacted by a very strong comparative period’

‘UK has been affected by the implementation of more stringent risk controls in October’

‘The uplift of revenue that the group typically experiences on a higher volatility day is becoming progressively less marked’

The FT commented : ‘IG yesterday said revenue in both the UK and Australia – its two biggest markets – had fallen by 7 per cent to £31.5m and £6.4m respectively during its third financial quarter’.

FT article.

Times article.

And not surpisingly, the share price falls by more than a third, from 260p to 180p.

So what happened? January 20th was already 51 days into the quarter.

Either trading collapsed since January 20th, or the company hadn’t detected a deterioration in trading when they announced Interim results on January 20th.

But wait! Somebody must have had an inkling of the risks inherent in the shares. Maybe the COO, Peter Hetherington believed the shares to fully reflect the positive news, with risk on the downside. He sold on January 28th and 29th 700,000 shares, reducing his position in the group by almost 40%.

We commented on Hetheringtons sale on February 2nd, when the share price was 280p.

View on IG Group – close negative view with 34% absolute and 32% relative (to FTSE 250) return.

On February 2nd we closed our negative view on 3i (III, 206p) with a 67% return relative to the market, or a 76% absolute return (post here).

We were a little wary of recent directors purchases, suggesting that they were in support of the incoming CEO Michael Queen.

The market appluaded McQueens appointment and rewarded the shares with a 23% run in the following two weeks. Since then however concerns have arisen over 3i’s credit rating, and the shares have given up all those gains.

On February 4th Richard Meddings, non exec, added a further 5,000 shares at 225p, and on 24th February Willem Mesdag, another non exec, doubled his position by buying 25,000 shares at 198.5p.

Over the last month therefore we have five of the seven non execs buying shares, althouh admittedly in limited volumes. Total purchases by non execs add up to only 70,000 shares.

However due to the number of non execs buying shares, we are moving 3i from a MEDIUM strength signal to a STRONG signal.

View on 3i: Positive

Strength of Signal: STRONG

For all posts on 3i click here.

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