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On October 14th I posted the following article ‘Are directors buying shares?’, prompted by your questions.

‘As at October 10th the number of companies in the FTSE 350 indicating net directors dealings over GBP 50k over the period I asked for (1, 3 and 12 months) were as follows:
1 month to October 10 2008:
26 companies showed net selling over a cumulative GBP 50k, and 32 companies showed net buying.
3 months to October 10th 2008:
58 companies showed net selling, and 54 companies net buying
12 months to October 10th 2008:
144 companies showed net selling, and 130 companies net buying.’

 

I’ve just run the Digitallook screen again, and find that over the past month, to today, companies in the FTSE 350 which exhibit cumulative director share dealing activity greater than GBP 50k are as follows:

6 companies show net selling, and 59 companies show net buying.

Over the past week, the screen shows 3 companies showing net selling, and 18 companies showing net buying.

This indicates that Buyers outnumber Sellers by between 6:1 and 10:1.

A very powerful signal that company directors think shares are cheap.

I guess valuation has something to do with it. The FTSE 100 is roughly 10% lower, and the FTSE 250 very roughly 20% lower over the one month period (compared to the one month to October 10th). Anecdotally most of the buying activity has occurred in FTSE 250 stocks.

For followthedirectors comments on companies exhibiting director buying activity click here (This is not a comprehensive list, but companies that we believe warrant comment).

For other general market commentary see Market Musings here.

For the excellent Digitallook screening tool go to Digitallook.com

Thomas Cross (CFO) and David McFarlane (CFO) pretty much called the top on Dana in June this year when they exercised options to buy shares at 236p and 414p respectively, and then sold them at 1886p and 1881p respectively.

They took GBP 4 million and GBP 1.76m respectively out of Dana Petroleum (DNX, 1037p) within 5% of the high (1972p in May).

So it is interesting to see a whisper of positive news just this last week as two directors buy shares.

Brian Johnston, a non exec, on October 8th bought 6000 shares at 908p, inititaing a position in the company.

Two days later, on October 10th, Stuart Paton, the Technical and Commercial Director, bought 9179 shares at 894p, taking his position to 32,529 shares.

Between them they have committed GBP 137k to the company, which is minimal when compared with the money taken out by the CFO and CEO in June.

It is however an important signal to investors, which may establish a level of support for the shares.

Please also note that we have recently seen hesitant director purchases in other natural resources stocks including Xstrata, Cairn Energy, and Premier Oil.

View on Dana: Positive, Directors are buying shares

Strength of Signal: Medium

See comment of October 19th: Dana Petroleum – CEO invests at 853p having sold at 1886p in June.

On September 26th in ‘ITV directors dip their toes in the water- add to watchlist’ I noted purchases by three directors/senior managers at ITV (ITV, 39.5p) . I wanted to see further purchases before I bought the shares.

Over the last fortnight two non execs have also bought shares, in limited size, taking the number of directors buying shares to five.

Heather Killen, non exec, on October 1st bought 22,000 shares at 43p, initiating a position, and on October 9th Agnes Touraine, also a non exec, bought 100,000 shares at 37.5p.

Although these are relatively small purchases in $$ terms, it should be noted that all the five directors who have purchased shares (Griffiths- CFO, Fincham- Director of Television, Russell- Deputy Chairman, Killen- non exec, and Touraine – non exec) have initiated positions in ITV in the last month.

As a result of this, and the number of directors buying shares, the recent transactions act as a STRONG signal to investors.

View on ITV: POSITIVE- Directors buying shares

Strength of Signal: STRONG

Link to all comments on ITV.

[See also May 4 post: ‘Directors share sales outnumber buys- Is the market expensive?’]

[See also subsequent post on October 31st: ‘ Directors ARE buying shares. Buys vs Sells 10:1’]

A question many of you have is whether directors are currently buying shares, and presumably does that indicate a turning point in the market?

The straight answer is ‘no more than usual’.

If you use digitallooks excellent visual tools facility, you can ask them to show you the number of directors buying or selling over a certain period.

As at last Friday, the number of companies in the FTSE 350 indicating net directors dealings over GBP 50k over the period I asked for (1, 3 and 12 months) were as follows:

1 month to October 10 2008:

26 companies showed net selling over a cumulative GBP 50k, and 32 companies showed net buying.

3 months to October 10th 2008:

58 companies showed net selling, and 54 companies net buying

12 months to October 10th 2008:

144 companies showed net selling, and 130 companies net buying.

I’ve just today run the analysis for the last seven days (to October 13th) and it shows

4 companies showing net selling, and 9 companies showing net buying.

I believe that this is not statistically significant due to the short period and the low number of companies exhibiting activity. Please also bear in mind that digitallook uses data as announced by the stock exchange, which will include the receipt by directors of scrip dividends, share options, and Incentive Plan subscriptions.

In followthedirectors research I exclude all Incentive Plan and dividend receipts, and any sales that are made to pay tax on options exercised. I aim to look at shares sold to receive cash, or shares bought with cash.

For a list of directors dealing activity use the category criteria on the top left of this page, or click on the following: Directors Buys, Directors Sales.

My name is Simon Winfield, and I have worked in leading investment banks in London and New York over the last 25 years, marketing investment ideas to the worlds top institutional investment managers and hedge funds.

Over the years I have met with senior management of hundreds of UK and European companies. I found managements’ body language and what companies didn’t say to investors to be far more valuable than what they did say, and I learnt to take the corporate spiel with a large pinch of salt.

Directors personal share dealings cut through the talk. I see them as a sign of what management really think of the opportunities and risks their company faces, as well as the current and potential company valuation.

In looking at directors dealings I ignore all the ‘incentive plan’ deals, where the company matches what you buy. Why wouldn’t you buy stock if you’re getting it half price? I ignore all the options exercising too, as this is usually seen by directors as pay which needs to be turned into cash.

Anything I write here is my personal opinion, and is not a recommendation to buy or sell shares, just my commentary on activity in the market.

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