Directors buying or selling shares in their employer can send important signals to the stockmarket. These people should theoretically know their business better than anyone else, particularly those with executive positions as they live and breath the day-to-day operations. Therefore keeping an eye on director dealings can provide useful investment ideas. The directors don't always make the correct calls, but we certainly believe director dealings should be considered a key indicator for the health of a business.
The most prolific director to buy shares in their company over the past six months has been Edward Bramson, chairman of F&C Asset Management (FCAM). It is interesting to note that he's kept buying stock – he's actually been a regular buyer for several years – even after giving up the day-to-day running of the business in December 2012 when he announced his intention to move from executive to non-executive chairman.
Bramson has bought stock on 28 different occasions over the past six months, according to Shares' sister website Directorsholdings.com. He staged a boardroom coup in 2010 and won the battle in February 2011 by securing the chairmanship of the business. He has made the investments in F&C through his SIGA fund, having first bought into the financial group at just over 60p. The stock now trades at 94.1p.
The Financial Times reported in January that Bramson tends to hold investments for 24 months, based on three previous examples. Yet the ongoing purchase of stock in F&C would suggest he has no plans to sell in the immediate future.
In May when the stock traded at 105p, Numis analyst David McCann said: 'We think it is a job half done since Bramson came in. The cost cuts appear to have been well implemented and have been priced in by the market in our view. The challenge for (new) management is to continue the turnaround by starting to achieve some decent organic growth, after years of decline. However, we see little evidence to suggest that this is about to happen (certainly not a story for 2013 in our view). We therefore believe the share price, which prices in the cost savings, but not much growth beyond that, is fair.'
More recently (24 June), Cantor analyst Catherine Heath said: 'We remain cautious on F&C pending greater evidence of the group’s ability to generate organic growth by way of net fund flows and consequent revenue growth. There may be some scope for further cost reductions in the event of further Strategic Partnership assets under management (AUM) losses but the focus must now be on the top-line. The valuation is, in our view, undemanding. However, there is still considerable execution risk in achieving our estimates – both as regards further potential Strategic Partnership AUM losses and net inflows.'
Anyone wanting to research other active directors, in terms of regular share transactions, take a look at real estate group CLS (CLI) whose executive chairman Sten Mortstedt has done 17 'buy' transactions of CLS stock in the past six months. He now owns 53.18% of the business. For more details on CLS, read our recent Play of Week article on the stock. Also prolific over the past six months has been Alliance Trust (ATST) chief executive officer Katherine Garrett-Cox, buying stock on 15 different occasions.
Like the CLS chairman, Garrett-Cox's regular dealings are not restricted to 2013 – they extend back several years. Yet it is worth noting that her transactions tend to be relatively small in value and mostly form part of a regular investing plan. This is something which investors should check – alongside whether share purchases are simply the exercise of options given in bonus schemes - when investigating the importance of any director dealing trade.