Directors have been splashing the cash at BAE Systems (LSE: BA), Amec Foster Wheeler (LSE: AMFW) and Smiths Group (LSE: SMIN). Should you follow their lead, and load up on shares of these three companies?
BAE Systems
There have been some notable casualties in the aerospace and defence sector recently. Shares of Meggitt crashed last month on a profit warning, while Rolls-Royce has become a serial issuer of such warnings over the last year or so.
In contrast, fellow FTSE 100 firm BAE Systems issued an upbeat trading statement on 12 November, with chief executive Ian King, commenting: “Overall the company is operating in an improving business environment and we continue to win new orders, with good prospects for the future”.
Following the trading statement, Lady Carr, the wife of chairman Sir Roger Carr, splashed out close to £200,000 on 41,978 shares at 472.88p a time. Remarkably, you have to go back to April 2014 to find the last time a BAE director or connected person made a substantial purchase in the market.
Lady Carr paid 12.4x the 38p-a-share earnings BAE has guided on for 2015. The shares are up to 497p now, but the earnings rating remains undemanding; and the forward dividend yield is still attractive, too, at over 4%.
Amec Foster Wheeler
Oil and gas engineering services company Amec Foster Wheeler is suffering from reduced capital expenditure by many of its customers, as a result of the prevailing low oil price, as well as increased pricing pressure on the supply chain. In a trading update on 5 November, chief executive Samir Brikho said: “We see no sign of these trends changing”.
The company announced it would be increasing its cost-cutting targets and slashing its dividend by 50%, as it manages the business “on the assumption of an extended period of weakness”.
However, since the trading update, directors have been buying. Mr Brikho has purchased 50,000 shares at 458.4p a pop, and chairman John Connolly has purchased 50,000 at 547.31p — for a combined outlay of over £450,000.
The shares closed on Monday at a lower price than the directors paid; indeed, at a new multi-year low of 438.2p. The most bearish analysts are forecasting earnings for this year and next of a bit below 30p a share (compared with a consensus of about 60p). Even taking the gloomiest forecast, the price-to-earnings (P/E) ratio looks reasonably attractive at not much more than 15x. Meanwhile, the 50% dividend cut still gives a juicy yield — almost 5%.
Smiths Group
Smiths is a considerably more diversified engineering group than Amec Foster Wheeler, though it hasn’t been altogether immune to the effects of the low oil price. In a trading update last week, chief executive Andy Reynolds Smith said: “Against a backdrop of challenging conditions in some of our end-markets, our expectations for the full year remain broadly unchanged”.
The trading update may have been lukewarm, but a separate announcement on the same day set the shares alight. Smiths revealed it has agreed a deal on its pension funding which will increase the company’s free cash flow by £36m a year.
Three directors loaded up on shares in the wake of the announcement. Mr Reynolds Smith bought 100,000 shares at 992.75p (£992,750); finance director Chris O’Shea bought 20,000 at 999.24p (£199,848); and chairman Sir George Buckley picked up 5,000, also at around the 1,000p mark (£50,000).
The shares are still trading at around 1,000p, on an undemanding forward P/E of 12.9x, with a dividend yield of over 4%.
