The Latest Big Director Buys
LONDON -- The FTSE 100 (UKX) has climbed 10% since its year low on 1 June, but some directors have been happy to buy shares in their own companies in this buoyant market.
Five firms have caught my eye. Insiders at these companies have together invested 2.6 million pounds. That suggests they have confidence in the prospects for their own businesses in what continue to be uncertain economic times.
Sure of insurance
Admiral (ISE: ADM.L) , the FTSE 100 car insurance group, announced a record half-year profit and dividend on 30 August. Chief executive Henry Engelhardt said the company was on track to meet its expectations for the full year.
Some negative broker comment -- including the view that, "there isn't much upside left in the stock" -- knocked about 5% off the value of the company last week. The chief executive's wife evidently disagreed because she bought over 2 million pounds worth of shares during the course of the week at prices between 1,104 pence and 1,108 pence.
Admiral's shares are currently trading at 1,131 pence, putting it on a forecast current-year price-to-earnings (P/E) ratio of 12.4 and a prospective dividend yield of 7.6%. The P/E looks nothing special, but the yield is well above the Footsie average, reflecting a dividend policy that tends to produce a high distribution of cash to shareholders.
Confident about asset management
After a strong recovery from the dark days of 2008-09, blue-chip asset manager Schroders (ISE: SDRC.L) is expected to see a dip in revenues and profits this year.
Chief executive Philip Mallinckrodt, a member of the Schroder family, has recently acquired an interest in 15,500 of the company's non-voting shares amounting to 175,615 pounds at the buy price of 1,133 pence a share. The trade was executed by the trustee of a settlement made by members of the Schroder family, of which the children of Mallinckrodt are among the potential beneficiaries.
Schroders' non-voting shares are now trading at 1,217 pence, giving a current-year forecast P/E of 12.4, while the dividend yield is 3.3%. Analysts are expecting earnings to rebound next year, bringing the P/E down to a more attractive 10.9. However, it seems to me to be a dangerous game relying on forecasts that far ahead in the current uncertain economic climate -- particularly in the case of financial-sector stocks.
Excited by equipment rental
Mid-cap firm Ashtead (ISE: AHT.L) is one of the leading providers of rental equipment in the U.S. and the U.K. Among other things, it provides: pumps and generation equipment in disaster zones; generation, lighting and other equipment for major events, such as the Super Bowl; and portable traffic management systems for engineering projects and accident clean-ups.
Ashtead released strong first-quarter results last week, and the board said it anticipates "a full-year result materially ahead of its previous expectations." Non-executive chairman Chris Cole immediately purchased 30,000 shares at 315 pence each for a total of 94,500 pounds.
The shares have since risen strongly to 333 pence, but analysts have also upgraded their forecasts significantly. Ashtead's P/E of 14.4 is certainly not in value territory, but forecast earnings growth of 34% gives an attractive-looking PEG (P/E divided earnings growth) of just 0.4. In theory, a PEG of 1 represents fair value, and anything below 1 suggests you're getting growth at a reasonable price.
Certain of sensors
TT Electronics (ISE: TTG.L) may be a 230 million-pound small cap, but it supplies advanced-technology components to some of the world's leading manufacturers in automotive, aerospace, telecommunications, and other industries. The company counts VW, BMW, and Daimler among its blue-chip clients.
On 22 August, TT Electronics reported a resilient first-half performance but a deterioration in confidence in its markets in recent months. The shares dropped 16% on the day, further the next day, and the non-executive directors piled in en masse, buying shares to the tune of 160,000 pounds at around the 140 pence mark.
At the current price of 147 pence, the shares are on a current-year forecast P/E rating of 10.5, with a dividend yield of 3.6%. The non-execs would seem to believe that the recently reported deterioration in confidence in the company's markets is more than discounted in the price.
Keen on outsourcing
Business outsourcing firm Innovation works with insurers, banks, car manufacturers, and fleet and leasing companies to generate cost savings and manage risk. Like TT Electronics, Innovation is a FTSE Small Cap firm -- valued at 200 million pounds -- but operates worldwide. Its clients include 16 of the top 20 global insurance companies.
In an interim management statement on 17 August, Innovation said it was confident it was on track to meet its expectations for the current year. Last week, the group's chairman and finance director both bought shares, spending 50,000 pounds and 25,000 pounds, respectively, at around 20 pence a share.
The share price is little changed, putting the company on a current-year forecast P/E of over 18 with analysts expecting no dividend. Not metrics I find appealing, I have to say, but the directors evidently disagree!
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G A Chester own shares in Schroders, but none of the other companies mentioned in this article.
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