‘actions speak louder than words’- my personal thoughts on UK directors share dealings
A small diversion. I was just reading this newsletter, and want to share it with you.
This has nothing to do with directors dealings, but everything to do with the deepening recession in the US.
Read John Mauldins ‘Thoughts from the Frontline’, and subscribe to his weekly email. Go to http://www.2000wave.com/index.asp
Like any transaction with a bank, you need to read the fine print before deciding on the merits of the offer.
Now that HBOS have released details of their directors purchases (why didn’t they tell us on Thursday?), I have changed my opinion as to the significance of these directors dealings.
1. The Bank EXPECTS executive directors to [buy shares] have meaningful shareholdings. ‘Every year since 2002 all incentive outcomes earned by all Executive Directors have, at their choice, been taken as HBOS shares, rather than cash’. The shares bought last Thursday were paid for using the net bonus paid to directors.
2. The increase in share positions is small, averaging only 16% of their pre purchase position in HBOS, wioth the exception of Jo Dawson, who increased her position by 49%.
3. The investments just made can be increased by up to 200% by the bank, dependent on real eps performance over three years. So these guys could be buying shares at 150p if they perform!
‘Executive Directors may receive up to 200% enhancement (250% for the CEO) of such shareholding dependent on growth in eps over three years in excess or RPI. 0% pa eps growth over RPI = 0% additional shares. +3% = 100% additional. +6% = 200% additional.’
My conclusion and revised opinion:
If the executive directors hadn’t bought shares in HBOS then that would have been something of concern. The fact that they did is in my view, and the view of the Bank, normal and expected behaviour. So the purchase on Thursday is in the normal course of business, and should not be taken as a positive message by investors.
For further details on remuneration policy see pp126-128 in the hbos plc 2007 Annual report and Accounts: http://www.hbosplc.com/investors/results/ARA_2007/downloads/HBOS_ARAreduce.pdf
I haven’t seen the full details yet of who bought what when.
But the Times points to a significant purchase by HBOS (HBOS, 474p) directors and staff, who ‘spent almost £6 million bumping up their shareholdings in the FTSE 100 mortgage bank the day after malicious rumours’.
Let’s take a look back to November last year, when the banks were in freefall over market rumours as to who held the toxic waste. RBS directors, by buying in significant size, and in concert, sent a very strong message to the market.
Over the next three weeks, RBS was up 21% absolute, or 18% relative to the FTSE. Can this happen again? Absolutely. But I don’t think it will take three weeks this time
See my note of December 6th: RBS directors outperform FTSE by 18%.
Postscript with my change of view following further information, see post of March 26th on HBOS ‘Read the fine print’.
Isn’t two months a long time in these markets!!
I was trying to find this post about the Easyjet (EZJ, 359p) Chairman Colin Chandlers track record in buying shares, and thought I’d written it only last month.
Now we see Andrew Harrison, the CEO, last week buying 72,000 shares at 345p, putting £250k to work. He has increased his position by more than 1/3rd so far this year, having put in another £250k in January at 424p per share.
The stock fell ( collapsed?) last week after easyjet disclosed that it would suffer from jet fuel price rises. No kidding !! What do you pay these equity analysts to do? Any conversation with the company would have revealed how far forward they were hedged, and jet fuel prices are quoted daily.
I stick to my view in January that these guys are worth following.
Brambles Ld (BXB, 424p) has a secondary listing in London, and a primary listing in Sydney. I noticed a director selling £702k of shares, way down from the high, and wonder if this is a result of a slowdown in revenue at the group.
Brambles directors have been buying through 2006 and 2007, at prices between 506p and 557p in 10s and 20s (thousands of shares). The stock peaked in October 2007 at 650p. Then, last week, Craig van der laan de Vries, ‘Group President of CHEP Asia Pacific’ sells almost 20% of his holding, 160,000 shares at 440p, raising £702,000.
What does he know that we don’t know? Hazard a good guess.
With 83% of Brambles revenues from CHEP, the global ‘bluepallets’ people, with sales split 44% Americas, 43% Europe, and 13% Rest of World, these guys have significant exposure to a slowing economy.
But then there could be 4% of the company coming to market pretty soon (see smh comment here).
The last news release was the interim results on Feb 21st, so don’t expect anything soon. But still I do find this a curious move by a director of the group, and as a result I believe that the risks from here forward lie on the downside.
I was intrigued to see, on the 13th March, Roy Gardner, Chairman of Compass group PLC (CPG, 309p) putting £200k to work (25,000 shares at 310p). I looked at managements track record with investing in their company, and found them to be pretty successful- no great blunders, but not trading in and out either.
I decided then that Compass Group should be watched. And hey presto, my inbox today shows the CEO Richard Cousins increasing his stake by 20% by buying 50,000 shares at 301.25p, investing £300k.
News ahead? Maybe a reassuring comment at the Trading Update on March 27th (see financial calendar).
See also ‘The Compass points South‘ February 8th 2009.
The Restaurant Group (RTN, 135p) keeps hitting the radar screen. This is the owner of Garfunkels, Frankie and Bennys, Chiquito, as well as many other brands and concessions, owning over 300 restaurants in the UK.
It hits the screen on director purchases, but also because these purchases are in a sector highly vulnerable to a fall in consumer confidence. And lastly, it scores highly due to the unusually high number of directors buying shares.
Five executive directors, the Non Exec Chairman, and the Company Secretary have over the last month put £400k to work in Restaurant Group shares.
Andrew Page, who was wise (not lucky, surely) enough to execrise an option and sell 650,000 shares at 351p in March last year, is now starting to buy back at less than half the price. Page has increased his position in Restaurant by about 60% over the last two weeks, buying 147,000 shares at between 140p and 147p.
Other directors who have participated in purchases are Bacon, Corzine, Morgan, Critoph, and Richardson, increasing their positions by between 15 and 50%.
Mike Butterworth, CFO, and Nick Salmon, CEO, of Cookson Group PLC (CKSN, 614p) yet again put their money where their mouth is.
Cookson on Tuesday declared in line results for 2007, with a confident outlook for 2008.
Butterworth and Salmon have been consistent buyers of the stock over the last three years. They last bought in March 2007, which prompted me to pick up some stock too. From March to October Cookson outperformed the FTSE250 by 40%. Since June 2005 Cookson were up 130% vs the FTSE250 up 60%, until October 2007. They’ve given up all this outperformance over the three months to January 2008.
The fact that Butterworth and Salmon have increased their holdings in Cookson by 90% and 45% respectively, gives me the confidence to buy some more for myself.
This is not a short term trade, ahead of news, but a longer term ‘invest alongside the management’ which has worked for me before.
Caveat: I’ve just read the statement from the company, not disclosed in the stock exchange statement, which shows this purchase to be part of the long term incentive plan. Under this plan, Butterworth and Salmon get ‘matching shares’ which means that essentially they’ve bought this stock at under 300p. So substantially lower risk to them than buying them at 590p (like you or I would have to).
I was just looking at the forthcoming news, and see that Savills (SVS, 344p ) have their results this week (Wednesday March 12th).
A pretty non committal trading statement in January, and decent performance by the Real Estate sector (Savills classified by FTA as Real Estate) mean that this stock has been a great performer. Savills are up around 50% from their January lows, and have also outperformed Taylor Wimpey by 50% since the turn of the year.
I warned that it was too early to buy the housebuilders when I saw a director at Savills selling down his position in November at 353p. But I really now believe that any news this week from Savills is likely to be negative for the share price.
No matter what they say about global reach, 80% of operating profits come from the UK. And did you know that they have more than 17,000 employees ? Yes, a large chunk of costs will be commission (1/3rd of total staff costs), but 17,000 people is a heavy cost base to manage when things are turning down.
Another thing. Savills financial results didn’t seem to have any gearing to the upside when revenues were rising (revenues up 34%, operating profits only up 10% at June 2007 interim results) which means costs (staff costs up 35%) have been rising as fast as revenues. So watch what happens when revenues start falling.
Sources:
Savills H1 results presentation: http://ir.savills.com/savills/finnews/reports/interim07pres/interim07pres.pdf
Google Finance: http://finance.google.com/finance
Digitallook.com: http://www.digitallook.com/
For all articles on Savills published on followthedirectors click here.
3i Groups (III, 820.5p) CEO Philip Rea has ample experience in dealing in his companys shares. Experience that is worth noting.
In May/June 2006 he bought 30,000 shares at an average price of 830p
In August 2007 he sold 76,203 shares at 1070p.
And now, on March 4th 2008, he is seen buying 60,000 shares at 809p
In the Interim management Statement of January 24th, Yea stated: ‘Our mid-market position and the depth of our international network have allowed us to continue to source good investment opportunities notwithstanding the more difficult economic outlook.’
If there is one person who knows what is going on on the ground, in terms of the economic performance of the companies 3i have invested in, then it’s Rea.
Reas purchase of 60,000 shares takes him to 336,000 shares, so this is what I would deem a significant investment in proportion to his current holding in the company. I’d like to see a few other directors lifting their stakes too.
But because Rea has his ear to the ground, I see this as a vote of confidence not only in 3i, but also in the broader market.
For all posts on 3i click here.
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