Directors know their company like no outsider could ever hope to. But not all of them are good at timing their investments in their own shares. That is why Shares has spent the past year tracking all the major director deals in a huge database to identify the board members worth following.
After recording the key buys and sells we can exclusively reveal who has their finger on the pulse. The top ten performing trades (see table, page 21), have delivered gains of between 211% and 486%. We unearth the motivations behind the deals and lessons to be learnt. Interestingly all of the top ten trades have been purchases made since November with a good number seeing management correctly believing their firms would return from the brink of a debt crisis.
A modest £50,403 acquisition by Wolseley (WOS) chief executive Claude Hornsby was the stand-out call. Made ten days after the builders merchant unveiled a £1 billion cash call, via a rights issue and placing, the 53-year-old correctly took the view a very depressed share price of 202p would quickly rebound as debt fears eased. In a little over a month shares have risen almost six-fold to £11.82, generating Hornsby a bumper 486% return.
Likewise, Davenham’s (DAV:AIM) risk director David Bowles (the eighth highest gain with a buy generating 224%) correctly put his money down in the belief the specialist lender would succeed in refinancing £215 million of banking facilities. Meanwhile, Simon Embley, chief executive of LSL Property Services (LSL) bought last November at 32p, a historic low for the company, as it extended debt facilities to 2011. This trade has since generated 225%, the seventh best return.
Four of the top ten performing directors bought on more than one occasion allowing us to build up a complete picture of their dealing track record. One lesson from this is that directors, like all investors, have trouble timing the bottom. David Radcliffe, chief executive of travel services group Hogg Robinson (HRG) started buying at 11.4p in early December ahead of the hugely profitable purchase at 4p later that month which has since returned 445% and secured him the accolade of the second-best trade.
Likewise, Cryo-Save (CRYO:AIM) non-executive Johan Goossens is 18% down on an early buy of 100,000 shares in September at 71p. But set against three profitable subsequent purchases between 12p and 38p, for a combined £214,300 consideration, the co-founder of the stem cell storage specialist clearly has a better feel for his company’s worth than the market, with his 12p deal now 383% in the money at today’s 58p.
Among our top-ten performing directors we would be cautious of following Imaginatik’s (IMTK:AIM) chief executive Mark Turrell. Contract wins have given credibility to forecasts of maiden operating profit and mean Turrell’s seven purchases last year at between 1.9p and 5.3p per share are in the black. But seven subsequent acquisitions since 2 January have lost him money tarnishing his overall performance.
The ten worst trades of the past year have generated losses of between 46% and 102%, with a sale by Maple Energy (MPLE:AIM) chief executive Rex Canon, at 109p, topping the table. Investors should note it is always harder to read anything into directors’ sales than in it purchases, as there can be many more reasons related to an individual’s circumstances driving a disposal. In Canon’s case it should be remembered the 47-year-old still retains a sizeable 8.9% stake in the business.
Xstrata’s (XTA) chief executive Mick Davis, whose two giant trades of the past 12 months have generated both the biggest monetary gain (£2.6 million) and the second largest monetary loss (£6.1 million), is clearly, net net, a poor indicator of where his company’s shares will go next. The losing trade also secured him number two position in our table of the least profitable deals with a purchase at £41.51 last May, currently down 88%.
Jorge Cosmen, deputy chairman of transport group National Express (NEX), should be used a contrarian signal for watchers of the transport group. His £26.3 million purchase at 870p last May, has since depreciated by 70%, or £18.4 million, and stands out as the worst monetary loss of the past 12 months. But he also bought a further three times and all have been losing trades bringing his total losses for the year to £27.1 million.
Director buying or selling can be a useful signal for
outsiders. But it is vital investors consider the subject’s
track record as well as fundamental analysis of a firm’s business, strategy and financial performance. Having recorded every single director deal over the past year Shares is in a good position to tell investors who is worth following and who is not.
10 best transactions by percentage gains
1. Claude Hornsby 486% gain
Wolseley (WOS)
‘Chip’ Hornsby, 53, has been with the plumbing supplies group for 30 years. After making his way up the North American division ladder, he became group chief executive in August 2006.
Hornsby stumped up £50,400 on 16 March for 25,000 shares at 202p ten days after the company announced half-year results in which it unveiled a £1 billion cash call via a placing and rights issue to strengthen the company’s finances. It was a good call as the shares subsequently rallied as Wolseley became a ‘back from the brink’ stock and a debt-relief trade. Hornsby’s investment has since generated a 486% profit with the investment now valued just under £246,000. Wolseley is getting out of the loss-making US building materials business but still faces difficult trading conditions. Investors who followed Hornsby’s trade should take profits. (DC)
2. David Radcliffe 445% gain
Hogg Robinson (HRG)
Radcliffe, 56, joined the travel company in 1978, and the board in 1989 before becoming chief executive in 1997. He guided its rebirth as a support services company and return to the stock market in 2006.
Radcliffe bought 248,831 shares at 4.0p on 19 December for just over £10,000, nine months after a profit warning as high oil costs and turmoil in financial markets curbed its clients’ travel plans. A trading update in February showed cost cutting and reassurance from Radcliffe trading was holding up. It scrapped the dividend as part of plans to focus on paying down debt. This was enough to please investors who bought into a potential recovery story, helping to lift the shares. Radcliffe’s investment is now worth more than five times its original value at £54,742. (DC)
3. Johan Goossens 383% gain
Cryo-Save (CRYO:AIM)
Goossens, non-executive director, 51, co-founded Cryo-Save in 2000. Prior to that he had worked in banking and had founded Beurstips, an investment magazine.
Goossens purchased 800,000 shares on 9 December at a price of 15p, and then stepped in again two days later to buy another 500,000 at 12p. At the current mid-price of 58p his gain on the latter is 383%. The shares took a dive in September after the interims disappointed on sales. Since late September the directors in general have given their company a vote of confidence spending a total of £1.6m buying shares. This faith was rewarded by the March finals which showed a resilient performance in spite of the economic downturn. Cryo-Save, which stores cells from umbilical cords, will aim to break in to the yet largely untouched French market from the middle of this year. (IM)
4. Chris Lambert 307% gain
Altona (ANR:AIM)
Lambert, 48, joined Altona as executive chairman having previously worked in corporate finance and as a consultant to mining houses in Australia. He is also a director of Braemore Resources (BRR:AIM) and Atlantic Coal (ATC:AIM).
Lambert bought 1,000,000 shares in the coal-to-liquids specialist at 0.9p at the beginning of December after seeing the shares lose nearly two-thirds of their value in the preceding six months – with a falling oil price undermining the case for unconventional fuels in general. The stock has since staged an impressive recovery with the group confirming alongside its interims progress continues to be made on its flagship Arckaringa project. Altona is currently moving towards completion of the final stage of the bankable feasibility study for a 10 million barrel coal-to-liquid plant. (TS)
5. Ishbel Macpherson 286% gain
Speedy Hire (SDY)
Macpherson, 47, joined the board following the AGM last June. An investment banker
of over twenty years standing, she has specialised in UK mid-market corporate finance.
Relative newcomer Macpherson snapped up 17,678 shares at 56p in January, in the wake of a relatively reassuring trading update from the tool and equipment hire firm. The stock had been heavily sold off on financing concerns and in the wake of a slowdown in UK construction – but Macpherson’s faith has been handsomely rewarded especially in the wake of the group managing to agree an amended £300 million banking facility. It also seems the group has been rewarded for introducing cost-cutting initiatives – since last July it has reduced staff by 957 (17%), depots by 82 (17%), and its vehicle fleet by 470 (15%) (TS)
6. Philip Rogerson 229% gain
Northgate (NTG) 229% gain
Rogerson, 63, became chairman of the van hire group on an interim basis in November 2006 before the job became permanent in June 2007. He is also chairman of support service groups Aggreko (AGK) and Carillion (CLLN).
Rogerson bought 30,000 shares at 41p for a £12,300 trade on 2 March, having earlier that day confirmed to the stock market Northgate would incur £153 million write-offs on its Spanish and UK businesses. This followed in February its third profit warning in five months. His investment has now generated a 229% return as investors welcomed Northgate’s cleaning of the slate. Several other Northgate directors including chief executive Steve Smith bought alongside Rogerson in March at between 42p and 43p a share and are subsequently also sitting on gains above 220%. (DC)
7. Simon Embley 225% gain
LSL Property Services (LSL)
Embley became chief executive at the time of the management buy-out of e.surv and Your Move from Norwich Union in 2004. Before that he had worked as managing director of the group.
Embley stepped in at the historic low for the share price at 32p as the company released an interim management statement in which it stated it had extended its debt facilities to 2011. LSL provides estate agency and surveying services and had been hard hit by the collapse in the property market and its high gearing. March finals proved surprisingly robust, largely the result of a strong performance in surveying, allowing LSL to gain further steam from the general rally of indebted property-related stocks. The price has recently been supported by signs transactional volumes in the UK residential market may be recovering. (IM)
8. David Bowles 224% gain
Davenham (DAV:AIM)
As risk director he decides lending criteria. Joined Davenham in early 2007 previous to which he spent eight years working at GE Capital Bank.
Made small buy of 51,355 shares in the specialist lender at 6.95p (£3,569 consideration) in early November. At the time there were doubts Davenham would succeed in refinancing £215 million of banking facilities. Highly-depressed, shares rebounded sharply running up to and following 24 March confirmation borrowings secured. Like Bowles, finance director Paul Burke and non-executive Graham Footitt, also made nominal purchases in early November when shares were trading near all-time 6.5p closing low. Are these trades of sufficient size to convince the market bad debts can be contained? (SK)
9. Garvis Snook 212% gain
Rok (ROK)
The 56-year-old was appointed as chief executive in 2000 joining from Morgan Sindall (MGNS) where he had been a managing director at a group company
Snook made a modest £9,250 purchase (50,000 shares at 18.5 p) shortly after 5 November profit warning where news of £150 million worth of cancelled or deferred works sent the shares on 52% one-day swoon. Sharp rally has followed cuts to the cost base which amount to an annual £30 million according to finals on 12 March. The award of two framework deals on 14 April to build and maintain new social housing worth £86 million over four years, reassured the market and shares have clawed back much of losses since 16p low on 26 November. (SK)
10. Mark Turrell 211% gain
Imaginatik (IMTK:AIM)
Turrell, 38, co-founded Imaginatik in 1994. Combined with his experience from Intel and General Motors, his doctoral thesis on collaboration and knowledge management became the basis for his business.
Chief executive Turrell’s vote of confidence drew a line under the falling share price last December, as he bought 55,000 shares at the 1.9p year low. The software company, which offers tools for collaborative problem solving, saw shares fall sharply the preceding October despite its cautiously optimistic trading update, as the market lost its tolerance for companies not yet profitable. Turrell bought another 75,550 shares in January, at 6p to 7.5p, only to see the stock fall back to 4.8p. But with several recent contract wins, the £6.3 million cap expects this year to mark its first operating profit. (JF)
Two worst transactions by percentage loss
1. Rex Canon 102% loss
Maple Energy (MPLE:AIM)
Prior to being promoted to chief executive in 1997, 47-year-old Canon worked for both Maple and its predecessor since 1987, holding various positions, including director of finance, chief financial officer and executive vice-president.
Although no doubt pleased with the reversal in fortunes for the company he heads up, Canon will be regretting the sale of 600,000 shares at 109p in February as since then stock in the integrated Peru-based oil and gas firm has more than doubled. Any disappointment though will be tempered by the fact he retains an 8.9% stake in the company and by the progress the group has made on its ethanol project. The momentum behind the shares may be boosted even further by results from an exploration well being spudded this month. (TS)
2. Mick Davis 88% loss
Xstrata (XTA]
Davis, 51, was appointed chief executive of the mining group in 2001 having previously worked as chief financial officer of Billiton – now BHP Billiton (BLT) – and executive director of South African state-owned utility Eskom.
Davis spent close to £7 million on 167,480 shares at £41.51 each on 21 May 2008. This turned out to be poor timing as commodity prices started a steady decline only a few months later, wiping billions of pounds off mining stock valuations. His investment has dropped 88% in value to around £830,000. There is some saving grace in his portfolio after making a second round of share purchases on 18 March, as part of Xstrata’s $5.9 billion rights issue. He invested just under £1.9 million for 891,396 shares at 210p. This has since appreciated 136% and is worth £4.4 million (see biggest monetary gain, below). (DC)
Best transaction by monetary gain
Mick Davis, £2.6 million gain
Xstrata (XTA)
Davis, 51, was appointed chief executive of the mining group in 2001 having previously worked as chief financial officer of Billiton – now BHP Billiton (BLT) – and executive director of South African state-owned utility Eskom.
Davis made a good call participating in the miner’s $5.9 billion rights issue. An investment of around £1.9 million for 891,396 shares at 210p is now worth £4.4 million. Although he grabs the top slot as the director making the biggest monetary gain on share dealings in the past year, the returns are not enough to offset losses on shares bought in May 2008. A £7 million investment on 167,480 shares at £41.51 is now worth 88% less due to weaker commodity prices hampering Xstrata’s profit margins. This was the second biggest percentage loss of all UK-quoted director dealings in our survey. (DC)
Worst transaction by monetary loss
Jorge Cosmen £18.4 million loss
National Express (NEX)
Cosmen, 40, joined the transport operator in December 2005 as non-executive director when his family’s bus business Alsa was acquired by National Express. Since promoted to deputy chairman.
Cosmen made the worst monetary loss of all UK-quoted director dealings when he bought just over three million shares in May 2008 at 870p. The £26.3 million investment is now worth £7.9 million after the shares plunged on concerns about the recession hitting commuter numbers. Rising unemployment has seen fewer people use its trains. To make matters worse, Cosmen has three more loss-making investments made in the past year. Across all four of these investments, he has lost £27.1 million buying National Express shares. (DC)
When a sell is a buy
When is a sale by a director a buy signal to investors? The answer is when the sale happens to 'to satisfy institutional demand.' Directors at antibody specialist Abcam (ABC:AIM) sold £6.1 million worth of shares at 480p on 23 September at the request of fund managers. Since then the shares have risen 36% to 666p. Likewise, human resources group Penna Consulting (PNA:AIM) chairman Stephen Rowlinson released £598,500 worth of stock at 142.5p on 15 December and the shares have gone on to rise 21% to 172.5p.
If it is not explicitly stated on the regulatory announcement, investors will get a sense of institutional demand from subsequent major shareholding announcements. Air Partner (AIP) one-time chairman Tony Mack sold £2.8 million of stock at 400p on 1 April and at the time no reason was given for the sale. But from subsequent announcements we know fund managers – including star performer Harry Nimmo of Standard Life Investments - were on the other side of the deal. The shares have since risen 18% to 470p. (SK)
How the data is compiled
MoneyAM and Shares managing director Mike Boydell has compiled our proprietary database of director deals. He explains how it works.
Over the last year, Shares has been tracking all the buy and sell trades by directors of London-quoted firms, both on the Main Market and on Aim. The leading transactions each week have been duly catalogued in our regular 'Director Deals' section. In this week's cover story we take a look back at the collected data to isolate the most profitable executive deals and zoom in on those with a track-record of successful trades.
We consider both percentage and monetary gains/losses. For trades which saw a director sell stock, a fall in the share price is counted as a gain and a rise a loss, as if an investor had sold the stock 'short'. Each week the regular 'Director Deals' section will list the largest transaction, also see www.sharesmagazine.co.uk/sharesdirectordeals. Our survey of most and least successful trades will be updated regularly.
