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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.

Lets start with the good news!

We’ve closed our cautious view on HSBC (November 14th article here), with a 10% absolute return or a 20% relative return over a month. We linked directors share sales with an expected increase in negative newsflow over China’s economy, and saw the shares weaker to reflect this. Maybe this is too short term a view, especially with reports that Chinas power generation ‘in October is down 4% from a year earlier‘ (The Australian October 15th).

Allscripts (MDRX) has exhibited further director buying activity this week, with Misys non execs John King and Sir Dominic Cadbury buying 10,000 shares each at $7.23 and $7.27 respectively . This is in addition to the Allscripts CEO Glen Tullman buying 100,000 shares at $5.11 on November 4th, and Misys CEO Mile Lawrie buying 70,000 shares for $5.09 on October 27th. Allscripts are a NYSE listed company, majority owned by Misys. Allscripts shares are up 39% since our article of October 30th.

I was intrigued by Babcock, where the CEO Peter Rogers bought shares for the first time in four years this week (see ‘Babcock CEO buys shares‘). This brings to seven the number of UK engineering companies where we have seen significant director buying activity, namely Babcock, Weir Group, IMI, Senior, Bodycote, John Wood and GKN. Which brings me to the bad news.

Only a couple of weeks ago, on October 28th, Nigel Stein, CEO of GKNs Automotive division, bought 84,000 shares in the group at 100.5p, taking his holding to 209,000 shares (see ‘Head of GKN Automotive doubles shareholding‘). Then along comes another profit warning, to the effect that orders have collapsed in two divisions, one of which is Automotive, in the last seven days. The stock price fell from 107p on Thursday to close at 87.5p on Friday. If Stein doesn’t know what’s going on, who does?

Another company that loves profit warnings is Rentokil, ‘the royal rat catcher’. I suggested in ‘Rats, Ships and Rentokil’ that a share sale by the Divisional Managing Director of Asia, David Liu, might be the precursor to further negative newsflow.

Lastly, in the small cap arena, Directors of TT Electronics were seen to accelerate share purchases, buying six times as many shares in October as they had bought in the previous 12 months. The next news on TT is likely to be a pre close statement in late December. See ‘TT Electronics sees an acceleration in directors buying activity’.

News Ahead

November 19th sees IMIs Interim Management Statement. I expect this to be positive in light of recent director buying activity. But after Fridays warning from GKN, who knows.

And November 26th is the scheduled date for De La Rues Earnings release. Remember that the CEO and CFO raised about GBP 1 million between them by selling shares in mid September (‘Currency Printers Cash In’). The shares have outperformed the FTSE 250 by 17% since then. Citigroup apparently downgraded the stock last week in anticipation of falling emerging markets revenues (Guardian November 10th). I agree, I think the risks are on the downside for De La Rue.

HSBC- ‘Emerging Markets under Great Stress’

In his letter to the G 20 leaders on November 6, IMF Head Dominique Strauss-Kahn said that emerging markets were now under great stress as the “capital flows that have sustained growth dry up across the board” (Source-IMF website).

The Observer advises that investors will anxiously scan HSBCs third quarter trading statement for ‘signs the financial crisis is spreading to its Asian business‘ (Observer November 9th- Crunch Pummels HSBC again‘).

Our note of October 12th highlighted share sales by directors of HSBC (HSBA, 746p) at between 766p and 884p. We suggested that HSBCs outperformance against the other (UK) banks would come to an end as concerns over emerging markets grew. 

Since October 12th HSBC shares are down 6% absolute or down 16% against the FTSE 100.

Misys- Allscripts

The Wall Street Journal (November 5th WSJ ‘Inside Track’) picked up our story on the purchase of $350k of Allscripts (MDRX) by Misys CEO Mike Lawrie. Misys also announced that Glen Tullman, the CEO of Allscripts, had also bought shares in Allscripts, investing $511k by buying 100,000 shares at $5.11 on October 27th.

Allscripts (MDRX, $7.00) are up 26% since our comment of October 30.

Haynes – growth in DIY car care?

Since our comment of August 31st ‘Haynes directors buy for first time in 6 years‘ we have seen significant further purchases: Chairman JHC Haynes has bought 135,000 shares at between 150p and 155p, on November 3rd and 5th. Digitallook (website) say that takes him to 235,000 shares.

In Haynes’ (HYNS, 150p) First quarter Interim report to end August, the group announced they had seen sales in auto repair manuals up 10% in the US market and up 5% in the UK market (in local currency) for the quarter (for full interim statement see here, click on Press Releases). 

Next news? The interim statement in January.

International Personal Finance plc

Four directors have been buying shares in this doorstep provider of small loans in emerging markets. With their direct relationship with the borrowers, IPF (IPF 146p) are probably in a better position than the more remote large cap banks, and I suggest that the directors of the company have greater knowledge of current trading activity.

Next news is the mid December pre closing analyst briefing. See November 7th comment ‘ Loans provider Intl Personal Finance sees directors buying shares’.

Directors ARE buying shares.

Following our suggestion in last weeks Weekly Review that Directors Dealings were signalling a bottom in the stock market, we’ve looked at Directors Dealing activity in the smaller cap indices using the excellent Digitallook visual tools.

We looked at Directors dealings over one month, and counted the number of companies showing net selling of greater than GBP 50k versus net buying of greater than GBP 50k.

FTSE 350 showed 7 sells vs 52 buys

FTSE Small Cap showed 4 sells vs 21 buys, and

FTSE Aim showed 1 sell vs 46 buys !!!

 

Disclosure: The author holds share positions in the following: Misys, Haynes.

For all comments on the companies mentioned, use the ‘SEARCH’ box to the left of this post to search the followthedirectors site.

Directors Buying signalling market bottom?

I was surprised on Friday to see such a turnaround in directors sentiment ‘Directors ARE buying shares. Buys outnumber Sells 10 to 1’.

Data on Directors Dealings from Digitallook (site here) showed that over the month of October Directors Buys in the FT 350 companies outnumbered Directors Sells by almost 10:1.

This is a sharp change from data I ran on October 10th, which showed Buys and Sells at similar levels for the prior month.

Is this a turning point for the market? What is the precedent?

I used the Digitallook Screening Tools product to screen for Directors buys over GBP 50k, and sells over GBP 50k, and looked at the market turn in early 2003, when the FTSE rallied by 1/3rd in 12 months.

Through 2002 and 2003 Buys to Sells are in the ratio of between 1:1 and 2:1 for most of the month periods analysed.  In August and September 2002 this jumped to 4:1 and 3:1 respectively, then fell back to 1 1/2:1 and 2:1 for the following two months.

In December 2002 the Buy to Sell ratio popped up to 5:1, and the market didn’t look back for 30%, rallying 900 points to 4500 over the next twelve months. 

The ratio of Directors buys to sells dropped back in January, but was consistently in the 1.5:1 to 2:1 range for the subsequent six months. 

Is it time to buy the market now? All I can say is that investors today have substantially less confidence in the information available with which to make investment decisions. With this information vacuum, I believe that Directors Dealings play a more substantial role in telling us what is going on inside companies.

UK Engineers. 30 Directors buying shares.

The market killed the UK Engineering stocks on news of dismal results and orders in the truck and autos sector, and also justified concern that expansion at mines and oilfields will be delayed, trimmed back, or pulled completely.

So it is with interest then that we’ve seen, over the last two weeks, a substantial number of directors buying shares in GKN, IMI, Weir, John Wood, Bodycote, Laird and Senior.

I don’t know much about these companies, but I do know they are often the world leaders in their product areas, that historically they have been pretty good at generating cash, and have also attracted bid attention in the recent past (Bodycote).

And I also know that the 30 directors who have bought shares know a lot more than me about the valuation of their businesses.

For all comments by followthedirectors over the last week on the companies mentioned above see here.

Misys CEO Buys $350k stake in Allscripts.

If you are a Misys investor you should ask your broker about Allscripts (MDRX). Is Allscripts a cheaper way to buy a faster growing portion (Medical) of Misys’ business?

CEO of Misys, Mike Lawrie seems to think that Allscripts is the way to go. He has invested $350k in the group (our comment here). Misys now own more than 50% of the company which has 60m shares outstanding. Bloomberg show a short position of 6m shares, so this could prove to be rather interesting in both the near and long term.

Carnival dividend cut.

I wondered how long the bad news would take to come out of Carnival, the cruise business. They have suspended their dividend, saving $1bn + a year. 

In June and August the CEO and COO took $4.5m out of the company. CCL is down 23% since our comment of August 5th ‘Chilling out or downside risk’, underperforming the FTSE by 5%. I suspect we’ll see further negative comment on bookings over the next few months.

 

Disclosure: The author has positions in Misys, Weir, IMI, Senior, Laird, Bodycote, John Wood.

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?

Misys have outperformed the market by 25% since Lawrie last bought shares in March 2008. In ‘mmmmmm Misys – ‘Turnaround Strategy’ working? ‘ followthedirectors drew attention to the Misys directors share purchases: 

Misys’(MSY. 137p) CEO, CFO and Chairman have increased their positions by between 14%, 50% and 60% respectively, buying shares at between 135p and 136p last Friday.
So why look at Misys?
1. Significant increase in positions (50-60%)
2. Three senior bods buying £70-£135k of shares each
3. Misys is one year into ‘Turnaround Strategy’, which should go some way to insulating them from the expected downturn in demand from banking customers.
So one for the watchlist, or for the long term investors.

Lawrie last paid 136p for Misys in March 2008. At the time MDRX were trading at $9 or 450p.

Misys are now trading at 118p, a fall of 14%, and MDRX at $5.50 or 342p, 24% lower (in the weaker pound).

Is that a huge variance? No. But I note, looking at Bloomberg, that the short position in MDRX amounts to 6.2m shares. Maybe that will all unwind when the acquisition of shares by Misys is settled.

Either way, I suspect that MDRX offers better growth (Medical underpenetrated by technology, higher recurring revenues, greater certainty of revenues than Banks), more certain cost savings (from merger of Misys and Allscripts Healthcare businesses), and ‘cheaper’ shares (as US holders sell out of what is now essentially a UK controlled company).

So if you are looking to buy Misys, investigate MDRX as a possible alternative. Lawrie has a good track record in his share purchases.

For all Misys comments on this site click here.

For the latest presentation (October 23) by the management of Misys Allscripts go to the Misys website.

View on Misys: Positive

Strength of signal indicated by directors share dealings: Remains STRONG

Disclosure: I have a position in Misys plc

WSJ November 5th ‘Allscripts executives snap up shares’

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