Slavishly following the share dealings of company directors is seldom a good idea. But investors are taking the hint today from a pair of boardroom heavyweights at budget greeting cards seller Card Factory (CARD). With the 365-day post-IPO 'lock-up' period having now passed, CEO Richard Hayes and CFO Darren Bryant have wasted no time in offloading a substantial slug of stock, roughly 7.4 million shares or 2.2% of the issued share capital between them.
But while this news is being taken predictably badly by the market - the shares are off 8.3% to 329.75p today - there remains a compelling growth story beneath the surface, one that also has scope for bumper cash returns down the line.
The sales are being handled 'via an accelerated bookbuild placing,' with Swiss financial giant UBS' (UBSG:VX) London arm pulling the necessary levers.
Yet even after this proposed sale, its worth noting these selling shareholders will still hold sway over 56.4 million shares, 16.6% of the company, and they've agreed not to sell any more shares for at least another three months. Hayes would still sport a 3.8% stake through his 13.1 million share holding; Bryant a 1.9% interest via 6.4 million shares.
Shares concedes the sale is disappointing - if directors are taking money off the table, why should investors put their hard-earned cash down? Yet the sale should be seen in the context of a strong share price performance, with Card Factory still 47% above its 225p IPO (15 May '14) issue price in the wake of today's reverse.
Growth potential and copious cash generation, as outlined in our recent cover story, support the investment thesis at this play on the structurally-attractive discount sector. Founded in Wakefield in 1997, Card Factory has expanded into a nationwide chain of 783 stores and its 1,200 store target suggests a visible growth runway ahead.
Card Factory's vertically-integrated model reduces external costs which it can then pass on to customers. Besides sector-leading EBITDA margins of around 25%, the model also generates copious amounts of cash, which Card Factory can invest for growth and use to fund a progressive dividend and return excess cash.
Its first quarter update (27 May ‘15) flagged progress with the new store roll-out and a further net debt reduction to £92 million. Card Factory announced a planned return of surplus cash towards the end of the current financial year to January. Details on the size, method and timing of the return should accompany the interims (22 Sept), though a special dividend appears more likely than a buyback given post float share price strength.
