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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.

From November 2007 to September 2008, directors of TT Electronics (TTG, 45p, Small Cap)  bought roughly 200,000 shares.

In October 2008 the activity accelerated, with five of the groups seven directors buying over 1.3m shares.

The directors dealing activity exhibited other favourable characteristics such as a significant % increase in shareholdings of the directors who bought shares.

John Newman, Chairman, bought 1.25m shares at 47p taking his holding to 10.8m shares.

Shatish Dasani, CFO, bought 35,000 shares at 48p, taking his holding to 100,000 shares.

Sean Watson, a non executive director, bought 55,000 shares at 46p, taking his holding to 62,000 shares.

David Crowther, another non exec, bought 20,000 shares at 47p, taking his holding to 40,000 shares.

James Armstrong, the Corporate Development Director, bought 21,000 shares at 44p, taking his holding to 71,000 shares.

TT make sensors and systems for the defence, aerospace, automotive markets, as well as telecoms and industrial electronics (company website). 

This rings a bell to remind us of the aggressive directors buying in the engineering stocks (see ’25 directors buy shares in UK engineering companies‘ October 28th followthedirectors.co.uk)           ).

Next news? With a December year end, we may see a pre close statement in the week before Christmas.

View on TT Electronics: POSITIVE- Directors buying shares

Strength of Signal : STRONG– Five directors buying, average incraese in position above 50%, in the region of GBP 500k invested, potential good (reassuring might be more appropriate in these times) news ahead.

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