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A reader asked me whether the recent share purchases in Robert Walters were significant.

This is my response:

Re Robert Walters Directors Share Purchases.

The share purchases you refer to took place on March 20th and are by CEO Robert Walters, who bought 143,000 shares at 82p taking his holding to 2.3million (excluding any options), COO Giles Daubeney, who bought 48,000 shares at 82p taking his holding to 1.66m, and CFO Alan Bannatyne, who bought 18,000 shares taking his holding to 108,000 shares.

Are these a good indicator of likely future share performance?

Long term (2+ years), I’d say yes.
Walters and Daubeney have a good track record, in that they sold respectively around 4.2m shares at prices between 246p and 360p, and 1.6m shares at between 246p and 368p, over the 16 month period between May 2006 and September 2007. The shares reached a high of 393p in July 2007! (source http://www.Digitallook.com)

So judging on historical performance, you can see these guys got out when the going was good! Does that mean it’s rightfor you and me to be buying the shares now?

First, let’s look at the sales. They took place over 16 months. They were consistent and measured. You’d probably need to assume that the buying by Walters and Daubeney that started in February 2008 might also go on for more than a year.

Secondly, is it possible to call the bottom. No. Walters and Daubeney bought shares at 150-151p in February 2008 (460,000 shares and 216,000 shares respectively).
Walters also paid 90p in November 2008. If you look at the specific purchases from last week, they are a small incremental financial commitment to already significant positions, and therefore do not signal any near term positive news. If they had increased their holdings by 20-30% that would be a different matter.

Thirdly, my analysis of 357 directors transactions over the last 15 months shows that Executive directors transactions have performed pretty much in line with the markets (-1.5% relative), whereas non executive directors have outperformed the market by 6.7 % (relative).

When Executive Directors purchases are supported by Non Executive directors purchases, the relative share performance improves substantially.

So if you are looking to buy shares in Robert Walters, wait for a non executive director purchase to complete the signal.

Regards,

Simon Winfield