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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.

There are many reasons directors buy and sell shares. It is finding a pattern and a track record that is key to working out whether the directors dealings you witness have any validity as a signal for investors.

I noticed some buying of BHP (BLT, 1191p) a week ago, on December 1st  by Mr A Mackenzie, who is a ‘Group Executive, CEO non Ferrous’. This was followed by  further purchases on December 3rd, 4th and 5th, amounting in total to 55,000 shares, an investment of around GBP 500k.

Mackenzie was accompanied by a Mr K Rumble, another Director of BHP, who invested about GBP 50k on December 3rd.

Looking through the BHP corporate website, I discovered that both Mackenzie and Rumble had recently been given Group Director or Executive positions, Mackenzie when he joined from RTZ in November, and Rumble in September.

BHP are very good at corporate disclosure, showing full details of their numerous Long Term Investment Plans and Share Plans on the group website.

It seems from the details of these plans, that in order to be eligible for the Group Long Term Incentive Plan, senior directors are ‘subject to a minimum shareholding requirement’ (Source : BHP Group website).

This would suggest that Mackenzie and Rumble have been buying shares in order to join the Incentive Plan, not because the shares have upside here.

I’ve just this minute been going through yesterdays regulatory announcements on the London Stock Exchange, and I find that, lo and behold, Mr A Mackenzie has been granted 225,000 ‘Performance Shares’ as part of the Long Term Incentive Plan, as well as a further 100,000 ‘Performance Shares’ as compensation for forfeited incentive awards at his previous employment (Awards granted Dec 4th, announced Dec 9th 15.28- Source London Stock Exchange). Worth him buying those 55,000 shares then!

Risks to Miners (my view):

The Australian pointed out earlier this week that the ‘China Iron and Steel Association…. wants 2008 agreements to terminate three months earlier than scheduled’. Not a good start to 2009 contract negotiations.  I guess RTZ are fully aware of the levels of volume and price the Chinese are looking for, hence their layoffs announced today.

We first heard of the Chinese delaying iron ore shipments as long ago as October 12th (see post on Mt Gibson, HSBC, China here).

It could be that when the broader market becomes more aware of the lack of growth/downturn in China in 2009, we may see another setback in equity markets, especially those with high input exposure to China.

No reason to buy BHP or RTZ quite yet.

Griffiths

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.’

jonathan-davieI’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.

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.

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

brand_buzzin_fly1

Sports Direct’s Mike Ashley has been having a tough time ‘New Pain for Ashley’ (Evening Standard 23rd October). Sports Direct International floated in February 2007 at 300p and has headed one way since then.

Are Sports Directs (SPD, 38.25p) shares now cheap?

Ask David Singleton, a non executive director. He bought on October 23rd 150,000 shares at 37.6p, taking his holding to 153,000 shares.

‘Dave Singleton was appointed a Non-Executive Director of the Company on 25th October 2007.  He spent 25 years with Reebok International Limited.  He stepped down in April 2007 he helped successfully to integrate Reebok following its acquisition by adidas Group in January 2006.  For eight years he was Vice President, Northern Europe Region & UK and since 2003 he was Senior Vice President Europe, Middle East & Africa’  (Sports Direct website).

Maybe the Sports Direct share price has been inextricably linked to the price of England shirts.

England shirts went on sale on 6th February 2007 at GBP 39.99. They are now for sale at GBP 4.49. That is 11.2% of the original price. Sports Direct shares are trading at 12.7% of the original floatation price.

Let’s hope the price of England shirts starts to go up !

 View on Sports Direct: Positive- Director buying

Strength of Signal: WEAK- only one director buying.

Shirt prices:

GBP 39.99 (http://www.anfield-online.co.uk/store/new-england-home-shirt-2007.html)

Ad above for GBP 4.49 (http://www.sportsdirect.com/)

When I wrote my post of September 15th  ‘Hargreaves Lansdown- more selling, signal strength now STRONG’, I was unaware of the reason for so many share sales.

The reason directors of Hargreaves Lansdown (HL. 182p)  have been selling is that this is the anniversary of their listing (see Citywire article here), and the lock up for part of their shares falls away.

This in my mind justifies the share sales as the directors are probably diversifying their financial assets. Although you might question whether they would all rush for the exit if there was good news ahead!

As a result of this I believe these sales have a lower value to investors, and I am moving the Signal strength indicator from STRONG signal to WEAK signal.

For all comments on Hargreaves Lansdown click here.

Back in May this year four executive members of the board (White, Farley, Kiloran and Bryant) of Persimmon (PSN, 377p) sold shares at 567p. Within eight weeks Persimmon shares were trading at 220p.

On September 30th we saw the first purchase of shares at Persimmon by the senior independent non executive director David Thompson. Mr Thompson invested almost GBP 80,000 for various members of his family by buying 20,000 shares at 398p.

Thompson increased his (and his familys’) holding in Persimmon by 50%, taking their holding to 60,000 shares.

These purchases don’t score highly on my ‘significance’ rating, because only one director is buying shares. I thought it worth recording though due to the size (GBP 80k) and the increase in shareholding (50%).

View of directors dealings: Positive- director is buying shares

Significance of the transaction: Low / Weak as only one director buying shares

MAN Group (EMG, 316p) directors have announced the purchase of warrants in MAN, spending GBP 930,000 to give them exposure to 1.64m shares in MAN Group plc.

The warrants cost 57.59p each, and give them a return of the average share price over three years less the strike price (undisclosed). For details of directors transactions see the MAN Group plc website.

Peter Clarke CEO bought 1.12m warrants. He also owns 4.6m shares having picked up a few more last week just short of four pounds.

Kevin Hayes CFO bought 260,000 warrants, as did Christof Moller, who sold 45812 shares to pay for them.

John Aisbitt, non executive Chairman, bought 100,000 shares at 340p taking his holding to 1.6m shares.

Are these moves significant?

I see the warrants as a way to reduce risk to the downside (you only lose 57.59p if the company goes bust, not 300p+), and would prefer to see outright share purchases as a stronger signal of a directors commitment to the group.

Having said that I think these purchases say more about the directors using their experience to see a buying opportunity where others see collapsing markets.

So these purchases count a WEAK Signal.

MAN Group results (link to Dow Jones comment here  ) were announced yesterday, revealing a 40% drop in performance fees in the first half, but a reassuring statement on regulatory capital.

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