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The risk to Marks and Spencer (MKS, 222p) was obvious from what I perceived to be exposure to a customer base with limited spending power. The whiff of Lily of the Valley with a faint hint of urine as I descended the escalator to the underwear and luxury foods hall at Marks’ Aberdeen branch betrayed the identity of a large part of the  groups customer base, the female pensioner.

When the mother in law switched her twice weekly shop from the nice fish and pre cut green beans in the food hall at Marks to the scrums at ASDA was when the profit warnings started. With UK interest rates collapsing, the purchasing power of this segment of Marks’ customer base has now evaporated.

But we have seen directors starting to buy shares, although in limited volumes.

I was tentative when Marks’ Deputy Chairman Sir David Michels picked up 84,000 shares in July and August between 249p and 265p (See ‘Marks- Sir David Michels increases holdings by 50%’).

Marks have however outperformed the index since August 16th, by 8%.

I still am tentative when I see Non Executive Director Jan du Plessis buy 20,000 shares at 222p (January 21st 2009), initiating a position in the group having been appointed non exec on November 1st 2008.

Du Plessis earned his stripes as CFO of the Swiss and South African luxury goods group Richemont for 16 years to 2004.

My view on Marks remains unchanged until I see more directors committing capital in bigger $$ amounts, something which may happen soon. Come on Mr Rose.

View on Marks and Spencer: Positive

Strength of Signal: Weak (requires further director buying to move towards Strong)

For all Marks and Spencer comments on this site, click here: Marks and Spencer

Seven directors of Burberry (BRBY, 229p) bought shares in November after the group warned of ‘tough conditions going into Christmas’.

Results today show like for like sales down only 3%, and an expansion of the cost cutting plan by an additional GBP 30-35m (Burberry Third Quarter trading statement here).

The shares have bounced sharply in relief today that trading over Christmas wasn’t as bad as the market had been anticipating.

So who did you listen to, the scary ‘tough conditions statement’ or the directors ?

Did you pay attention to the words or the actions?

Burberry shares are now up more than 35% since our comment on November 24th (STRONG signal, Positive view, see ‘Burberry Check’), and have outperformed the FTSE 250 index by over 20%.

Take profits.

Over a year ago, in December 2007, the CFO of Next (NXT, 1150p) increased his holding bynext-spring-summer-09 8%, investing GBP 170k at 1711p. I didn’t view this as a strong signal, as he was a solo buyer, unaccompanied by other directors, and increasing his holding by less than 8% (followthedirectors: ‘Next- Keen but not yet convinced’). Over the next six months Next underperformed the market by about a third.

What I missed in July 2008 was the turning point for Next. Three directors (Chairman Barton, CFO Keens, and Non exec Dawson all bought shares, investing between GBP 16,000 and 37,000 each. I missed it due to the low $$ value of each transaction. It missed my screen. Next duly outperformed the market by over 70% between July and now.

Last week Andrew Varley, the Group Property Director, sold 10,000 shares at 1234p taking his holding to below 70,000 shares (Source: London Stock Exchange). I do think this sale is significant: Varley has been on the board of Next for 18 years, the sale value is more than the combined purchase value of Keens, Dawson and Barton.

View on Next: Negative

Strength of signal: Medium

M&S (MKS, 276p)

Deputy Chairman Sir David Michels on August 14th bought 37,734 shares at 265p, taking his holding to 113,984 shares. This is in addition to his recent purchase of 47,500 shares on July 29th.

The retail sector has been firm recently on the back of weaker oil prices, maybe anticipating that inflation in the UK will fall away in the coming months.

I mentioned in my last post of July 30th that I needed to see more commitment from other directors before buying shares myself. Thursdays purchase by Michels hasn’t changed this.

Signal strength for M&S remains WEAK

DSG International (DSGI, 55p), Dixons to you and me, hits the radar as a possible recovery stock.

On July 7th the ‘new’ CEO John Browett bought 125,000 shares at 38p, investing £47k.

Last Friday non exec Andrew Lynch bought 20,000 shares at 50p, investing just £10k.

These are the first decent purchases by directors of DSG in almost FIVE years, with the exception of non exec John Whybrows solo purchase on 21st June 2007 of 95,000 at 163p.

At the moment DSG will go on the ‘WEAK signal‘ list, pending further purchases by the same or other directors.

For a recent article on DSGs ‘past mistakes’ see The Times here.

High Street Store

It’s interesting to see over the last week or so directors at Halfords (HFD), Woolworths (WLW),  N Brown (BWNG), Instore (INST) and Kingfisher (KGF) add to their holdings.

Buys in the General Retailers sector over the last month took place at 14 companies (net 1 month, over £50k, source digitallook), with no companies reporting director sales. This compares with data showing, over the last twelve months (same criteria over total of twelve months), 32 companies with net buys, and 14 with net sells. I believe this to be a significant indicator for the sector, however when looking at individual companies the ‘value’ of this signal is not so clear.

In analysing directors dealings I look for a change of attitude (ie from buy to sell or vice versa) and a historically successful track record in dealing by directors of the company.

Kingfisher (KGF, 133p) Ian Cheshire, CEO, added to his holding this week by buying 268,000 shares at 148p. But he also bought stock in October ’06 at 256p. Is he averaging down, or is this a vote for himself, having taken on the CEO position on January 28th?

N Brown (BWNG, 243p) shows the CEO buying 150k at 240p, but the CFO selling 56k shares at the same price. So in my mind they cancel each other out.

However at Halfords (HFD, 276p), two non execs bought a smallish amount of shares at 269p.  This is Wilsons first foray, and Pym, Halfords Chairman, increased his position by about 50%. What is interesting is that Pym bought  stock in June 2006 at 289p, also 10,000 shares. Halfords share price then ran to 411p in July 2007, which incidentally is where CEO Mcleod sold a significant block of stock.

I’d like to see more buying from Halfords directors before throwing myself into this one. But Halfords should be added to the watchlist.

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