Senior directors are buying at two different communications related companies -- and the investment opportunities are also from opposite ends of the spectrum.
Director buying seems muted compared to a few months ago. Perhaps boardrooms are as uncertain as pundits about how much further this rally can go? If anything, director selling is more the trend -- but share sales aren't considered much of an indicator, compared to buying.
With most companies still valued way below their peaks, a few directors are being tempted to put their money where their desks are.
Here are a couple of buys that caught my eye this week -- one promising, and one to be wary of.
Business Post Group
Guy Buswell, CEO of Business Post Group (LSE: BPG), spent £42,750 on 15,000 shares in the company he runs this morning. He paid 285p a share.
Buswell now has a £350,000 stake in the £150 million Business Post Group -- not to be sniffed at, though dwarfed by chairman and founder Peter Kane's £60 million holding.
The company has grown profits strongly in recent years, with adjusted, pre-exceptional earnings per share rising from 6.4p in 2006 to a better-than-anticipated 22.7p in the year to March 2009. An attractive dividend of 17.2p has been held throughout, although it's only covered 1.2 times by this year's earnings. Better is the £9 million in net cash.
The shares touched 500p in 2007 (and reached 700p before) but fell at the end of that year on fears of a recession impacting its parcel delivery business, as well as pressure from larger rivals.
Parcel volumes have indeed fallen. But overall sales have held up due to a strong mail business and a variety of innovative post-related services.
Business Post Group has also cut costs, sites and employees. Indeed, most of a £1.2 million exceptional charge it took in the past financial year related to site closures and redundancies. Taking this charge into account obviously takes the shine off its profit performance, and in fact I'd question whether cost-cutting in the face of the business cycle really is 'exceptional' for this sort of company.
The recession remains pivotal to the company's immediate prospects. It says trading is currently in-line with management expectations -- but those expectations are for 'challenging' conditions.
The shares are not especially cheap, on a P/E of nearly 13, but if you believe the economy is turning around fast -- the fabled V-shape recession -- then a recovering parcel business could see the leaner Business Post emerge strongly from the downturn.
I'm seeing green shoots, and so I'm adding Business Post Group to my watchlist with the hope of buying on weakness.
Yell
Investors drawn to a recent £50,000 buy in the Yell Group (LSE: YELL) boardroom should take care. The Yellow Pages may be the familiar face of this company, but lurking behind it is a telephone directory sized list of problems.
Incoming chairman Bob Wigley spent £48,326 on 130,260 Yell shares on Monday, paying 37.1p per share. They now cost 42p.
Wigley, who has a background in investment banking, will take up his post in July. He says he's long been an admirer of Yell:
"I know of few companies which are so successfully building and monetising a rapidly growing online business to complement its highly cost-effective print operations. I look forward to joining as chairman and to helping support the Group through its next phase of development."
Positive talk is a pre-requisite in a new chairman, but this director-speak brings to mind the opportunity to nab a better deckchair on the Titanic. In reality, Wigley is stepping into a crisis.
Yell, with a market cap of just £330 million, is saddled with £4.3 billion of debt. It recently took an astonishing £1.3 billion writedown against its Spanish operations, which have collapsed as the Spanish economy has crumbled. The company's shares traded at over £6 in early 2007.
Key will be whether Yell can avoid a rights issue at these depressed levels, and also trade sufficiently strongly to meet its banking covenants. It reported in its final results in May that:
"Our ability to stay within our debt covenants in the year ahead could be influenced by uncertain future trading conditions. However, the Group's cashflow forecasts show sufficient resilience, despite the uncertain outlook, that in the year ahead interest payments will be fully met, with further cash generated to repay debt."
Other positives (and caveats): Last year saw a 38% year-on-year growth in online revenues -- though they still only make up 15% of overall sales. Overall sales were up 8% to £2.4 billion -- they would have slipped 5% but for currency effects. Yell's cash flow is strong -- but then it needs to with all that debt.
The new chairman's share purchase signifies a show of faith, not a surefire investment opportunity. On a price-to-sales basis Yell Group is laughably cheap, but of course that measure excludes the debt mountain. The shares dipped below 12p in March, but they have risen an astonishing 250% in the 'dash to trash' rally.
I'd like to see how revenues hold up in the face of the extensive cost-cutting plans for at least a couple of quarters before even considering investing, but to be honest I don't think I could ever stomach the huge borrowings. A rights issue seems inevitable -- the best hope for holders is that a case emerges in the meantime for the new shares to be placed at a higher price than today.
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