Directors can sell shares for all sorts of reasons; but sometimes sales suggest the share price may be set for a fall. Here's the lowdown on two recent director sales.
Directors sell shares for all sorts of reasons. Perhaps they want a new house, or they need to get some cash to fund an expensive divorce settlement. But sometimes share sales can precede a share price fall, so I always like to keep an eye out for chunky boardroom share sales. Here are two that caught my eye last week:
Yell Group
(LSE: YELL)
The boss of Yell Group's US division, Joe Walsh, trousered more than £5m last week after selling 1m shares at 535p a throw. He still owns 4.2m shares.
Walsh is chief executive of Yellow Book USA, which is the largest independent directory company in the US, and accounted for around 55% of Yell's total sales last year. The rest of the sales came from the UK where Yell owns Yellow Pages.
Yell's shares have been strong performers since the company floated at 285p in summer 2003. The market has been impressed by growing profits and dividends -- indeed, analysts expect the dividend to rise 14% this year to 17.5p.
A fair bit of that growth has come from the Internet, but Yell has also bought several businesses in the US and, this year, a Spanish directories business, TPI. Bears worry that Yell has overpaid for TPI. The Competition Commission's enquiry into the UK classified advertising market is another concern.
I've no idea why Walsh has sold shares, but the shares are trading on a price/earnings ratio of 14, and given the competition issues, they don't look compellingly cheap to me. I can understand why Walsh might want to reduce his stake, even if his personal life is blissfully happy.
Tesco
(LSE: TSCO)
Shares in supermarket retailer, Tesco, have had a pretty good year, climbing 14% to 370p. Investors were pleased by news in June that overseas sales jumped 15% in the previous quarter.
The UK business also performed reasonably well with like-for-like sales rising 4.5% in the same period. Total market share also edged up 0.1% to 31.5% according to data from market research group, TNS.
On the downside, Tesco's three main UK rivals, Sainsbury
(LSE: SBRY)
, Morrison
(LSE: MRW)
and Asda are all getting their acts together. Competition regulators may also make life tougher for Tesco. They might force the company to sell some of its land bank earmarked for future store development.
So perhaps it's not surprising that finance director Andrew Higginson has decided to cash in some of his share options. He exercised his right to buy 524,000 shares at 197.5p last week and then sold them in the market at 370p, making a profit of £897,000. He still has options over a further 2m shares, and, on top of that, he owns 1.65m shares.
Still, I'm a big Tesco fan. The shares may now be trading on a price/earnings ratio of 17 for this year, but given the overseas opportunity, they should still prove to be a decent long-term investment.
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