Interactive Investor

Insider: Huge bet on Glencore, Hiscox trio buy

2nd October 2015 10:31

Lee Wild from interactive investor

Canny NED bets large on Glencore

Staggering like a drunk, Glencore did a superb job of sucking the blue chip index sharply lower at the start of this week. The reasons have been repeated extensively - Investec Securities said shares in the debt-ridden miner could be worthless if commodity prices don't improve.

Glencore shares, which had begun the week at 97p, were trading 30p lower by lunchtime Monday. But a day later broker Bernstein piped up that the shares could be worth an improbable 450p.

In truth, it could be either. Despite trying to slash debt by over $10 billion, Glencore is burdened with massive borrowings at a time when metals prices show little sign of a sustained recovery. And investors seem very happy to make short-term trades. The shares traded between 86p and 99p Thursday, making them both the biggest riser and largest faller at various points in the session.

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But Tony Hayward, who ran BP for three years until the deadly rig explosion in the Gulf of Mexico, spies a bargain. The chairman coughed up £91,000 Wednesday on 100,000 Glencore shares at a little under 91p.

And wealthy non-executive director John Mack had already shown why he has run both Credit Suisse and Morgan Stanley. Picking up 550,000 shares Tuesday at 80.78p each cost him £440,000. And at 92.1p he's already sitting on a spectacular paper profit of over £62,000.

But its non-exec and private equity man Bill Macaulay who has the deepest pockets. He's made a £1.5 million bet on a Glencore recovery, buying 1.7 million shares Thursday at 90.91p. Every penny move in Glencore shares either way is worth an almighty £17,000 profit/loss to the American.

And Macaulay is worth watching. The owner of US private equity firm First Reserve (FR) made almost 390 million from the sale of 135 million Glencore shares at 278-302p earlier this year. In June, FR sold its last 34.3 million shares at an average price of 278p. A week before it sold 7.7 million at 287p.

First Reserve, along with BlackRock, the Government of Singapore Investment Corporation (GIC) and China's Zijin Mining Group, invested in Glencore through a $2.3 billion convertible bond in 2009. Glencore floated two years later at 530p.

Hiscox; insure against catastrophe

Insurance companies have been falling like ninepins. Brit and Catlin have already gone, Japan's Mitsui Sumitomo Insurance is paying nearly £3.5 billion for Amlin, and Beazley, Lancashire and Novae are regularly touted as the next bid target. Hiscox is, too. It doesn't always happen, of course. Zurich has left poor old RSA in the lurch after pulling out of a potentially lucrative deal for the struggling firm.

And a takeover at  Hiscox may not be imminent. Non-executive directors Ernst Jansen, Anne MacDonald and Andrea Rosen have just splashed out on Hiscox shares worth almost £61,000. The trio paid 949p a share, which is just a handful of pennies off a record high and three times the asking price at their post financial crisis low in 2008.

And Hiscox shareholders need not depend on M&A activity to generate decent returns, according to Interactive Investor's resident stockpicker Edmond Jackson recently.

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"The latest results affirm Hiscox's strategy to harness growth and the group's ability to generate cash, which will aid continued expansion and shareholder returns," he says. "I would not, therefore, be put off by broker 'sell' advice. Hopefully, they will maintain it and jittery markets also help bring the price back for fresh buyers. Otherwise the five-year chart is justifiably asserting a superior business."

Edmond admits that insurance can be a tricky area to feel conviction about investing - it's often hard to judge any industry cycle and what extent stocks discount it. There are unpredictable catastrophes and business tends to be competitive. But since his recommendation the shares are up from 915p. Yet multiples still do not appear stretched. At that price, the price/earnings (PE) ratio is about 12 times for 2015, and a prospective yield of 2.5% to 3% is covered three times by earnings. There have been special dividends, too.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.