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On December 19th, with Johnston Press (JPR, 34.25p) at 12 p, prompted by non exec Ian Russell buying 800,000 shares at 12.25p, we wrote (article: “Johnston Press- option money worth spending?”)

“The jury will remain out on Johnston until the half year results in August 2009 at the earliest.  But the shares certainly won’t be trading at 12 1/4p by then. They will either be worth nothing, or above a pound.”

Nothing has happened to change that opinion. The shares have been as low as 5p, and as high as 41.5p.

One piece of news though supports our view, but is really being used as an excuse to write about Johnston Press: Mr Vickers, an Executive Director of Johnston Press,  bought 7843 shares at 25.5p on May 6th, taking his beneficial holding in the group to 97,000 shares.

So peanuts really. But positive not negative.

View on Johnston Press: Positive (no change)

Strength of signal: Weak (no change)

John Wood Group plc (WG., 236p) have outperformed the market since directors bought shares in October 2008 (up 32% absolute, up 5% relative) and December 2008 (up 27% absolute, up 10% relative) (for the followthedirectors comments on October 28th (179p) and December 10th (185p) click here).

Last week we saw Mark Papworth, an Executive Director of John Wood Group, exercise options over 50,000 shares at 3.3p, and sell them all at 247p. (April 24th, source London Stock Exchange).

We at followthedirectors view this negatively. A sale of sufficient shares to pay for the tax liability on the options exercise would be seen as neutral. A`sale of a greater number of shares is treated as a net sale, in this case of around 25,000 to 30,000 shares. This follows 16 individual cases of share purchases since October 2008 by directors of John Wood Group.

View on John Wood Group plc: Neutral- close positive view of October 28th and December 10th 2008.

Strength of Signal: Weak

interservelogo300ppiInterserve (ISV, 203p) is a services, maintenance and building group (www.interserve.com).

In May to September 2007, Executive Directors Vyse, Jones and Ringrose exercised a significant volume of options, and sold all the resulting shares at between 496p and 526p.

Vyse has since retired, but Adrian Ringrose (CEO), Tim Jones (CFO) and Steve Dance (Exec Director) in March this year started buying shares 60% cheaper, at between 199p and 213p.

Ringrose bought 23200 shares at 213p taking his holding to 112,000 shares, Jones bought 17228 shares at 200p, taking his holding to 61,000 shares, and Dance bought 13427 shares at 199p, inititating a position. (17th to 30th March 2009- source London Stock Exchange).

They have since been followed by Exec Director Bruce Melizan, who on April 8th bought 13954 shares at 192p, initiating a position, and David Thorpe, a Non Exec, also initiated a position by buying 12793 shares at 194p on April 21st.

Conclusion

That makes all four Executive Directors and one Non Exec buying shares in Interserve. Of course this sounds very convincing, but if we look at the historical performance shown by companies we have monitored since November 2007, not so compelling.

In the seven cases where five directors have bought shares, the average relative performance has been -23%.

In the five cases where four or more executive directors have bought shares, the average relative performance is 0.84%.

Directors in these cases may have been subject to group think‘. Without qualitative analysis (interviewing all the directors) we can’t say whether this is true or not.

So history is against you. Of course the past is no indication of the future !!

View on Interserve: Neutral– could change to positive if we see more non exec purchases.

Value of signal (directors dealings)- Weak

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)

On September 30th last year, with MAN above 300p,  we saw directors of MAN Group plc (EMG, 219p) buying warrants at around 57p, rather than buying the shares outright.

Probably a good thing really, as MAN Group shares lost 40% of their value in the following six weeks, more than twice the 57p paid for the options.

For our comments on MAN Group in September, read ‘MAN Group Directors step in to buy after results announced’ (WEAK signal).

So what now with the reorganisation and renaming of funds?

With no new directors purchases since September last year, I’m happy to stay on the sidelines here. If management don’t feel the shares offer value, with a yield above 8%, then why should you.

I’d agree with Tempus here, ‘A buy for the brave’, but let the MAN directors show their courage first!

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

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Three directors of Rio have invested about GBP 560,000 in RioTinto (RIO, 1925p) shares over the last few days.

On their own, I would see this as a STRONG signal to investors, but as Rio are in the process of asking shareholders to approve the terms of the Chinalco deal, I think these purchases should be taken with a healthy dose of scepticism.

Paul Skinner, Chairman of Rio Tinto,  said in a recent press release (February 12th, http://www.riotinto.com):

“Chinalco’s investment is a clear vote of confidence in Rio Tinto’s strength, its growth prospects and the outlook for the commodities we produce.”

To show his personal support for the deal (I believe) Skinner has bought 4000 shares at GBP 19.6955, investing almost GBP 80k (source: London Stock Exchange, date 16/2/09). Put this in the context of Skinners pay as Chairman, GBP 693,000 in 2007 (source: RioTinto annual report 2007).

The other purchases were made by Executive Director Dick Evans, who bought 10,000 ADRs at $114.685 (13/2/09) and Lord Kerr (Non executive director) who bought 4000 shares at GBP 19.38 (16/1/09) (source: London Stock Exchange).

View on RioTinto: Positive

Strength of Signal: WEAK (clouded by company being in the process of a share offer and asset sale)

Back in August last year, the CFO of BT Group (BT.A, 99p) Hanif Lalani, invested GBP 100,000 at 171p.

On Friday he was joined by his CEO Ian Livingstone, who bought 99,500 shares at 99.7p, taking his holding to 759,000 shares, in addition to over 2.5 million deferred compensation and incentive shares.

This isn’t a buy signal.

Livingstone has been in and out of BT all year, and this purchase does not signal any change in behaviour. Livingstone bought at 230p in February 2008, sold at 233p and 172p in May and August, and bought at 163p in August also. Make of that what you will!

For a positive signal on the stock, we need to see more non execs buying. Chairman Sir Michael Rake bought at 127p and 166p in September and November 2008, almost doubling his holding by buying 32,000 shares. BT has seven other non execs, and they haven’t bought yet.

View on BT Group: Neutral

Signal from directors dealing activity: WEAK

The risk to Marks and Spencer (MKS, 222p) was obvious from what I perceived to be exposure to a customer base with limited spending power. The whiff of Lily of the Valley with a faint hint of urine as I descended the escalator to the underwear and luxury foods hall at Marks’ Aberdeen branch betrayed the identity of a large part of the  groups customer base, the female pensioner.

When the mother in law switched her twice weekly shop from the nice fish and pre cut green beans in the food hall at Marks to the scrums at ASDA was when the profit warnings started. With UK interest rates collapsing, the purchasing power of this segment of Marks’ customer base has now evaporated.

But we have seen directors starting to buy shares, although in limited volumes.

I was tentative when Marks’ Deputy Chairman Sir David Michels picked up 84,000 shares in July and August between 249p and 265p (See ‘Marks- Sir David Michels increases holdings by 50%’).

Marks have however outperformed the index since August 16th, by 8%.

I still am tentative when I see Non Executive Director Jan du Plessis buy 20,000 shares at 222p (January 21st 2009), initiating a position in the group having been appointed non exec on November 1st 2008.

Du Plessis earned his stripes as CFO of the Swiss and South African luxury goods group Richemont for 16 years to 2004.

My view on Marks remains unchanged until I see more directors committing capital in bigger $$ amounts, something which may happen soon. Come on Mr Rose.

View on Marks and Spencer: Positive

Strength of Signal: Weak (requires further director buying to move towards Strong)

For all Marks and Spencer comments on this site, click here: Marks and Spencer

I am trying to find a good reason for Ian Russell, a non exec at Johnston Press (JPR, 12.25p), buying 800,000 shares at 12.25p, taking his holding to 815,000 shares.

All I can think of is that he sees the possibility/a chink/ a flicker of light at the end of the tunnel.

Johnston Press ‘currently operate 18 daily newspapers, 300 weekly newspapers and a huge range of related specialist, locally focussed, print publications. They operate 323 local websites to extend the content and reach of their print products (Company website).

As such Johnston Press is/has been hugely vulnerable to the economic dowturn. On November 12th in an Interim management Statement, Johnston revealed that in weeks 27-44 advertising in property was down 48%, employment 32%, motors 24%, and display 12%.

This is made worse by the huge leverage this group has, with net debt of GBP 465m at November 1st, thankfully down GBP 19m from June 30th (Company website, Interim Management Statement)

So why is Russell buying shares?

This is Ian Russells first significant purchase, but probably not a large % of his assets. Russell was appointed to the board in 2007, was formerly CEO and CFO of Scottish Power, as well as currently being an advisor to 3i (Company website).

Johnston Press shares have fallen from a high of above 350p in April 2007, and now represent option money to investors. It may be that Ian Russell believes they offer a risk worth taking.

The jury will remain out on Johnston until the half year results in August 2009 at the earliest.  But the shares certainly won’t be trading at 12 1/4p by then. They will either be worth nothing, or above a pound.

View on Johnston Press: Positive

Strength of Signal: Weak. Only one director buying, in limited size.

Addendum: Consumer confidence improves for the second month in a row (BBC article on GFK NOP study)

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