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Should You Follow Directors Buying At Diageo plc, Homeserve plc And Paypoint plc?

Directors have been splashing the cash at Diageo (LSE: DGE) (NYSE: DEO.US), Homeserve (LSE: HSV) and Paypoint (LSE: PAY). Should you follow their lead and buy shares in these three companies?

Diageo

Nicola Mendelsohn joined drinks giant Diageo as a non-executive director in September 2014. She has waited eight months to make her maiden purchase of shares (on 28 May), buying 5,000 at 1,839p a share for a total investment of £91,950.

Last week, you could have picked the shares up cheaper — they closed on Friday at 1,760p — but, after weekend reports of a possible takeover bid for the company, the shares ended Monday’s trading session at 1,880p. Still, that’s only a couple of percentage points higher than Ms Mendelsohn paid.

Diageo is currently experiencing weakness in some markets, an inventory overhang and adverse exchange rates. The stock trades at a discount to the beverages sector, so it would be no surprise if trade buyers are indeed interested in a company which is out of favour with investors, but which has a fantastic stable of brands and solid long-term prospects.

Homeserve

This plumbing, heating and electrical emergencies and repairs group counts renowned fund manager Neil Woodford among its major shareholders. In addition to its UK business, Homeserve has established operations in the US, France and Spain.

Directors have been buying in numbers since the company released its annual results on 19 May. The details of the dealings are shown in the table below.

Director Date of purchase No. of shares Price per share Total investment
Mark Morris (non-exec) 2 June 15,312 435.3p £66,653
Stella David (non-exec) 21 May 10,450 430.6p £44,998
J M Barry Gibson (chairman) 20 May 40,000 419.4p £167,760
Ben Mingay (non-exec) 20 May 20,000 419.6p £83,920

Homeserve’s shares are trading at 428p, as I write, which puts the company on a price-to-earnings (P/E) ratio of 22.5, compared with 18.8 for the FTSE 250 index. However, Homeserve’s premium may be merited, because the growth opportunity in the US is tremendous. Also, there is a hefty dividend in the price (until the ex-dividend date of 2 July): an 11.5p ordinary and a 30p special, giving a yield of 9.7%.

Paypoint

Paypoint is a payment collection network that enables people to pay utility bills, top up mobile phones and so on. There are over 28,000 Paypoint retail terminals in the UK, and over 9,000 in Romania.

Neil Carson, who was chief executive of FTSE 100 chemicals group Johnson Matthey from 2004 to 2014 has built a portfolio of non-executive directorships: Amec Foster Wheeler (appointed August 2010), Paypoint (appointed July 2014) and TT Electronics (appointed April 2015).

Mr Carson seems to have bought no shares in Amec Foster Wheeler after five years, but recently purchased £23,000 worth of TT Electronics shares, which doubled his holding in that company. However, the day after the release of Paypoint’s annual results on 28 May, Mr Carson splashed out an impressive £193,640 to buy 20,000 Paypoint shares at 968.2p a pop.

You’ll have to pay a bit more today — 1,018p, at the time of writing — but the company’s P/E of 17.7 remains at a discount to the FTSE 250 multiple of 18.8, while a 3.8% dividend yield is comfortably higher than the index’s 2.4%.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.