Interactive Investor

Insider: Buying on biblical scale

21st October 2016 14:18

Lee Wild from interactive investor

Like animals boarding Noah's Ark, directors went in two-by-two this week, with executives buying stock in some of the worst performers in recent months.

Travis Perkins starts to rebuild

It's been a difficult 15 months for Travis Perkins. The building products supplier's share price has halved from over £22 to less than £11, and, after a post-referendum recovery, was torpedoed again by a third-quarter profits warning.

Group like-for-like sales growth of 2% in the three month period was short of market estimates of 3.2%, despite management's prediction that third-quarter would be better than second-quarter. It's why adjusted operating profit will be "slightly" below current market consensus of around £415 million.

Plumbing and heating sales let the side down, falling a "disappointing" 4.1% on a like-for-like basis over the three months. Chief executive John Carter said a review is underway at the division, although we won't hear any more until next year.

Travis's bosses have a good reputation for fixing problems, as you might expectTravis, which also owns Wickes and Toolstation, is shutting 30 branches and renegotiating prices with suppliers. There'll be an exceptional charge of £40-50 million this year.

However, bosses have a good reputation for fixing problems, as you might expect, and both finance director Tony Buffin and non-executive director Chris Rogers have had a bet on them doing so again.

Buffin has just paid an average of 1,401p each for 3,000 Travis shares, taking his stake to over 123,000. Rogers spent almost £50,000 on 3,600 at an average of 1,381p.

Pearson bottom of the class

Education giant Pearson has been in the dog house since selling the FT last year. A partial recovery unwound completely following poor third-quarter results this week, and the share price remains half what it was 18 months ago following a series of profit warnings.

Bookstore destocking is still a problem, and business here is much weaker than feared. It's partly why analysts at Barclays believe investors will not stomach a high valuation multiple for the shares.

Pearson has traded anywhere between 10 and 15 times forward earnings this year, but Barclays believes investors will not stomach anything above the middle of this range. That implies a price target of 640-800p based on the broker's earnings per share (EPS) estimate of 63.8p for 2017.

Poppycock, say chief executive John Fallon and finance director Coram Williams. They've just spent £113,000 between them on 10,000 and 5,000 shares respectively at 754.5p and 753p.

Lombard Risk Management tipped to double

Elsewhere this week, Lombard Risk Management chief Alastair Brown and top number cruncher Nigel Gurney coughed up over £65,000 in total. Brown, who joined Lombard less than a year ago from Royal Bank of Scotland, took a further 540,540 shares at 9.25p a piece, and Gurney, appointed the year before, 168,961 at 9p.

Shares in Lombard, a supplier of regulatory reporting software, rallied this week following results that showed record half-year revenue of £15.2 million and pre-tax losses narrowing from £1.8 million to just £0.1 million. An £8.3 million fundraise in June at 8.75p meant net cash more than doubled to £6.9 million.

That money will be ploughed into the business through the second half, forming the foundations for significant growth in earnings over the next couple of years. House broker finnCap expects 0.4p EPS in the year to March 2018 and 1.4p a year later.

"We set our original target price on a multiple of 14x the 'mature' £4.4 million earnings before interest, tax, depreciation and amortisation, but with increased certainty and visibility we lift that 10% to 16.5p," writes analyst Lorne Danial.

Marshall Motor pair beef up holdings

Car dealer Marshall Motor Holdings caused a stir this summer, little more than a year after its IPO on AIM. The company spent £107 million on upmarket rival Ridgeway, which last year made adjusted cash profit of over £20 million on revenue of £722 million.

A spectacular rally quickly unwound, however, and they had dipped further recently. Chiefs issued a statement claiming to know of no reason for the fall other than "general speculation surrounding the potential impact of Brexit on the UK economy and the automotive sector in particular".

Remaining optimistic about the outlook for the year, non-executives Alan Ferguson and Peter Johnson backed the recovery with their own money. Each bought 25,000 shares at 150p for a total spend of £75,000.

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.