Directors have been splashing the cash at Barclays (LSE: BARC), Smith & Nephew (LSE: SN) and Meggitt (LSE: MGGT). Should you follow their lead, and load up on shares of these three companies?
Barclays
On 28 October, Barclays announced the appointment of Jes Staley as its new chief executive. Chairman John McFarlane, who previously set insurer Aviva on the road to recovery with the help of a canny chief exec appointment, will be hoping Staley can deliver a similar result for Barclays.
McFarlane seems confident. On announcing Staley’s appointment he said:
“After an extended process, I now know Jes well, and we are in agreement on the way forward … I look forward to working with him in what will be an exciting and important period for our company as we seek to accelerate the delivery of improved shareholder returns”.
Staley seems confident, too. He’s set to take up his role on 1 December, but has already made a maiden purchase of shares. And what a purchase! Last week, he bought 2,790,000 shares at 233p a time, for a whopping total investment of £6.5m.
I can quite understand Staley’s enthusiasm. Barclays is trading at a near-20% discount to net tangible asset value, and at less than nine times next year’s forecast earnings. These are bargain-basement ratings, and investors following the new chief executive’s lead could reap substantial long-term rewards.
Smith & Nephew
Smith & Nephew released a third-quarter trading update on 29 October. The medical devices firm maintained its full-year guidance of underlying revenue growth and an improvement in trading profit margin. The company also announced a $275m acquisition, “securing a leading position in the fast-growing area of orthopaedic robotics-assisted surgery”.
The following day, non-executive director Robin Freestone, who joined Smith & Nephew on 1 September, made his maiden purchase of shares. The former finance boss of media company Pearson bought 15,000 shares, paying 1,101p a share, for a total outlay of just over £165,000.
Fellow non-executive director Vinita Bali has also been a buyer post-update. Bali purchased 600 American Depository Receipts (each equivalent to two ordinary shares) on 4 November. The latest buy takes her total purchases of these instruments to 3,000 in the past six months at an average price of $34.67, giving a total outlay of over $100,000.
Smith & Nephew is trading on a rich 18.7 times forecast 2016 earnings, but the high rating may be justified, because this is a quality defensive business with long-term demographic trends in its favour.
Meggitt
Aerospace and defence firm Meggitt issued a profit warning on 28 October, sending the shares crashing 20%. It was a cue for widespread buying by directors, managers and connected persons. Indeed, no fewer than eight individuals have made purchases, at prices between 348.8p and 355.4p, and for sums between £35,404 and £352,670. In total, these eight individuals have invested £871,435.
Chief executive Stephen Young described the current market weaknesses the company is experiencing as “very disappointing”, but said the directors “remain confident in the medium to long-term strategic direction and financial performance of the Group”.
Meggitt’s shares have seen a bit of a bounce, and now trade around 10% higher than the cheapest director buys. However, I wouldn’t be surprised to see renewed weakness in the shares, given the current uncertainties and the old stock market adage that “profit warnings come in threes”.
