MARKET COMMENT
Director Buying Could Signal Cheap Market

By Maynard Paton (TMFMayn)
July 19, 2002

There are few issues more contentious than directors' share dealings. Are they shrewd purchases from those really in the know? Or are directors too close too their own companies to take an objective view? There's plenty of evidence for and against examining their trades.

With the stock market falling, the last couple of weeks has seen numerous directors opening their wallets. Here's a summary of the director dealings taken from the July 6th edition of the Financial Times:

Buying

Number of directors: 86
Number of companies: 43
Total amount purchased: £7,075,146

Selling

Number of directors: 15
Number of companies: 9
Total amount sold: £15,587,223

And here's a summary of the director dealings from the July 13th edition of the Financial Times:

Buying

Number of directors: 90
Number of companies: 48
Total amount purchased: £3,921,865

Selling

Number of directors: 10
Number of companies: 4
Total amount sold: £1,220,198

(The dealings cover trades over £10,000 made between June 24th and July 10th.)

There are two conclusions. Firstly, there are plenty of directors buying at the moment, their average purchase being around £60,000. Secondly, there are few directors selling, although most disposals run over £100,000. In fact, four directors from utility services firm Enterprise (LSE: ETR) offloaded shares worth £12m recently, while £1m-plus disposals have come from consultants Tribal Group (LSE: TRB) and biotech KS Biomedix (LSE: KSB).

So what can ordinary investors divine from all this? Well, there's nothing concrete, but it shows shares across the board could look reasonable value at the moment. All those directors can't be wrong, can they? Indeed, a ratio of at least five buyers for every one seller in a falling market does suggest directors as a breed have a strong contrarian streak.

Interestingly, the only major purchases of late are to do with football. Mayflower Securities, a company "connected with" Chelsea Village (LSE: CAV) chairman Ken Bates, recently purchased 20m shares of the London club for £3.6m. Freddy Shepherd, director of Newcastle United (LSE: NCU) recently acquired 5.1m of his club's shares for £1.1m.

Time to pile in to the football sector then? Probably not, as there's nothing to suggest the industry's bottomless pit characteristics will change in future. With Premiership has-beens Leicester City (LSE: LCC), amongst many others, currently facing a cash crunch, prospective football investors need more to go on than two boardroom big spenders. Then again, maybe Messrs Bates and Shepherd know something us punters don't? As always, nothing is ever straightforward with director's dealings.

More: www.directorsdeals.co.uk