Should You Follow Director Buying At WM Morrison Supermarkets PLC, International Consolidated Airlns Grp SA And Avanti Communications Group PLC?

Directors have been splashing the cash at Morrisons (LSE: MRW), International Consolidated Airlines (LSE: IAG) and Avanti Communications (LSE: AVN).

Should follow the lead of the directors, and load up on shares of these three companies?


Half-year results from Morrisons last week didn’t make for pretty reading. Turnover at the troubled supermarket was down 5% to £8.1bn, while net profit plunged 42% to £107m. Management said: “the turnaround will take time and require sustained investment in the proposition”.

Finance director Trevor Stain immediately bought 58,453 shares at 169.8p a pop, for a total outlay of just shy of £100,000. He’s been followed this week by chief executive David Potts, who invested £500,000 in 314,881 shares at 158.79p — adding to a cool £1 million he invested at 205.85p three days after joining the company in March this year.

Clearly, Mr Potts (who was previously with Tesco for 39 years) and Mr Stain (another former Tesco man) reckon Morrisons can be a successful player in the UK groceries market. The company is already ahead of its three-year cash-flow target, and the business could come to be valued significantly higher in due course than it is today with the shares at 158p.

International Consolidated Airlines

In contrast to Morrisons, International Consolidated Airlines (IAG) is in a purple patch of growth, driven by more travellers, operating improvements and low fuel costs. The holding company of British Airways and Spanish flag carrier Iberia has also recently acquired Irish flag carrier Aer Lingus, and looks set for continuing strong top-line and bottom-line growth for the foreseeable future.

Last week, long-time non-executive director James Lawrence decided the time was ripe to open his wallet and buy more shares in the company. He purchased 22,000 IAG American Depository Receipts (ADRs) at $45.50 a time. Each ADR is equivalent to five ordinary shares, so Mr Lawrence in effect bought 110,000 shares at around 585p a share, for a total outlay of £643,500.

IAG’s shares are trading at about 600p, as I write, so just a tad higher than the price Mr Lawrence paid. With strong earnings growth forecast, the shares could continue to fly higher, though investors should bear in mind this is a cyclical industry.

Avanti Communications

Satellite operator Avanti Communications released its annual results on Wednesday this week. On the same day, non-executive director Andrew Green bought 21,888 shares at 218p a share, for a total outlay of £47,716. That may not sound such a big deal, but it’s Mr Green’s maiden purchase since joining the company in November 2014. It’s also the first purchase by any Avanti director in almost a year, while you have to back nearly two years to find a bigger buy!

Avanti highlighted revenue up 30% to $85m for its financial year ended 30 June. However, the cash-flow statement is less impressive: outflows of $10m from operations, $102m on investment and $52m interest on loans and other borrowings (which stood at $528m at the year end).

Chief executive David Williams said: “the achievement of our long term plan is now a matter of continued execution of the same performance, with cash flows expected to build as customer growth compounds”. However, I’d want to see more serious and numerous director share buys before being convinced that this business can reward investors as handsomely as the Board, whose current annual salaries and cash bonuses are running at $3.4m.

Still, I can tell you that here at the Motley Fool we believe you don't have to be a highly-paid company director to build yourself a nest egg for retirement.

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