Interactive Investor

Insider: Keep buying this dividend king

24th March 2017 13:41

Lee Wild from interactive investor

Much of the selling this week seems to be linked to expiration of lock-in periods on company share incentive schemes. It's why HSBC chief executive Stuart Gulliver, chief risk officer Marc Moses, boss of Global Banking and Markets Samir Assaf and head of HSBC Bank Antonio Simoes shared over £700,000 at 657p.

And it's also netted Big Yellow chief James Gibson a cool £117,000 from the sale of a stake at 721p.

However, some interesting 'buy' orders have been placed by directors this week, which deserve further investigation.

Briggs backs Aviva

We covered Aviva's full-year results a couple of weeks ago. The insurer's share price jumped 7% as chief executive Mark Wilson said he was "actively planning" a return of additional capital to shareholders, one year ahead of schedule.

A Solvency II coverage ratio of 189% - above the company's targeted range of 150-180% - implies about £1 billion of excess capital. Solvency II is a set of rules governing the amount of capital European insurers must hold to reduce the risk of insolvency. It must be enough to give 99.8% probability that it will meet its obligations over the next year.

Trading on single-digit price/earnings (PE) multiples, Panmure Gordon analyst Barrie Cornes upped his target price from 525p to 592p, with prospective dividend yields of 5.2% and 5.5% for this year and next.

Aviva shares peaked at 547.5p in the aftermath, their highest in almost two years, but stalled at an historic level of technical resistance – the horizontal line on the monthly chart below at around 540p.

However, Andrew Briggs, the former Friends Life boss who now runs Aviva's UK insurance division, couldn't care less. He and his wife have taken advantage of a subsequent price dip to spend over £95,000 between them on 18,000 Aviva shares at around 531p.

There seems little wrong with Aviva on current valuation multiples, attractive dividend and strong operating performance. The Briggs family clearly agree.

Can you buy Abcam on the cheap?

Abcam's share price has doubled in the past two years, but the Cambridge-based supplier of antibodies to medical researchers has had a difficult few weeks.

Half-year results, published on 6 March, looked OK at first glance. Revenue grew a market-beating 30%, or 10% at constant currency, and is tipped to do 9-11% in 2017 at unchanged foreign exchange rates.

Operating margins were better than expected, and pre-tax profit was up 20% on a reported basis to £25.1 million, or 32% to £32.1 million if you strip out one-offs.

But Dr Julie Simmonds, an analyst at Panmure Gordon, doesn't like it at all. "It is becoming increasingly challenging for Abcam to maintain its growth rate, and the risk of a fall in the [National Institutes of Health] budget will provide a further headwind," she says.

"Even if cuts do not come through immediately, we expect US researchers to be more cautious with current grant funding. Although longer term Abcam management aims to move away from the research market we expect this to take some years to come through at a scale."

Dr Julie repeats her 'sell' rating on Abcam and 680p price target. Ouch!

Stefan Hamill at Numis Securities is kinder, and he's optimistic about further earnings upgrades, possibly at the full-year results. However, he did downgrade his view from 'add' to 'hold' as the shares were nudging his price target of 912p.

Abcam shares made a record high at 948p on the day of the results, but struggled to hold onto any gains above 930p. And they've sunk without trace in the past week, trading below 800p Wednesday for the first time since January, 16% below its peak.

If you believe Panmure, there's further to fall, but Abcam management backs itself to bounce back. Four of them, including chief executive Alan Hirzel, chairman Murray Hennessy, finance director Gavin Wood and non-executive director Mara Aspinall have put their hands in their pockets.

Between them, they've used to sell-off as a buying opportunity, spending around £169,000 on shares bought for as little as 809p – stand up canny Mr Hirzel – and for no more than 849p.

Abcam shares have just bounced off the 200-day moving average, but investors will look at the fundamentals, too, and will demand that the company at the very least match its growth targets to justify an eye-popping forward PE ratio of 29.

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.