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Barratt (BDEV, 144p) are up 90% absolute and 60% relative since January 15th when a price of 75p catalysed my positive view: ‘Barratt- look for buying opportunities’.

We’ve just seen a few minor directors sales at Berkeley Group Holdings, with Pidgeley, Perrins and Carey selling 600,000 shares between them at 960p, reducing their holdings to a combined 6.48m shares (April 29th- source London Stock Exchange).

So these share sales are insignificant in % terms, but I consider them an indicator of a likeley ‘breather’ in the Housebuilding  sectors performance.

So I’m happy to take my profits on Barratt Developments.

View on Barratt Developments: Neutral.

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historic performance jumps to + 16% (followthedirectors analysis of transactions of 350 directors over last 14 months-unpublished).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)

Barratt (BDEV,  80.25p) directors have been actively buying into the group since November, initiating or significantly increasing their personal holdings as follows (Source: London Stock Exchange):

  • November 18th Robert Lawson, Non exec Chairman, bought 151,000 shares at 65.3p, and now holds the same amount.
  • November 20th Mark Rolfe, Non exec director, bought 30,000 shares at 62p, and now holds the same amount.
  • December 19th Mark Clare, CEO, bought 357,000 at 69p, taking his holding to 529,000 shares.
  • December 19th Mark Pain, CFO,  bought 60,000 at 74.8p, taking his holding to 100,000 shares.
  • December 23rd Stephen Boyes, Executive Director, bought 65,000 shares at 76.4p, taking his position to 107,000 shares.

Between them these directors have invested GBP 450k, at a time of  great uncertainty in both the stock and property markets.

Barratt have however impressed the market with recent results, showing an impressive ability to generate cash and pay down debt, as well as reduce costs by shedding 60% of their employees.

The group today warned of margins being squeezed, and therefore unlikely to meet brokers estimates [ which is probably near term and pretty irrelevant to the long term viability of this business] (FT article).

What matters with this group is that directors are actively buying, and they appear to be managing the economic problems quickly and positively.

On November 8th 2007 (‘Housebuilders- too early to buy’), with Barratt above 500p, we warned of downside in the sector as a result of seeing significant directors share sales at Savills. I’m happy now to be looking for opportunities to invest in Barratt for the longer term below 75p.

View on Barratt Developments: Positive

Strength of signal: Strong (caveat: must be viewed long term ).

barratthomes

In mid October we saw three directors (two executive, one non exec) buying significant positions in Barratt Developments (BDEV) . Was this in anticipation of Gordon Browns aggressive house building targets for the UK in order to satisfy housing demand?

Conversely Simon Hope, director of Savills (SVS) , last week exercised some share options and sold a significant chunk of stock (taking a net £350k off the table), even after a 50% fall in the share price since April.  I would suggest this to be a negative sign for the real estate sector in the UK, and an indication that volumes have significant downside risk over the next six to twelve months.

The best indicator of upcoming risk in the sector was the decision by Jon Hunt, the founder of Foxtons, to sell out in May pocketing £370m. http://www.guardian.co.uk/business/2007/may/22/housingmarket.houseprices

For a buying signal, we need to see directors from across the sector putting money to work. This could be a while coming.

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July 2020
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