Should you follow their lead, and load up on shares of these three companies?
Brand powerhouse Reckitt Benckiser — the owner of such names as Cillit Bang, Nurofen and Veet — released market-pleasing third-quarter results in October. The company upped its guidance on like-for-like revenue growth for the full year from +4.5% to +5%.
The shares have been making new all-time highs this week, and on Tuesday chief financial officer Adrian Hennah decided the time was ripe to increase his personal shareholding by more than a third. Mr Hennah bought 10,000 shares at a smidgen below £63 a time for a total outlay of just shy of £630,000.
Reckitt’s forward 12-month price-to-earnings (P/E) ratio is 24.6, compared with the FTSE 100 long-term average of around 14. The company’s brand power and operational efficiency certainly mean the business merits a premium to the average firm, but the premium looks a little excessive to me at the present time. Annual earnings growth is running at mid-single digits, and, with the shares now making new highs of over £64, investors may want to consider holding off for a dip and a lower entry point.
It’s been a woeful year for investors in G4S. The shares of the world’s leading security group are down around 25% from their spring high of over £3. The misery has just been compounded by last night’s news that the company is to be kicked out of the FTSE 100. As from 21 December, G4S will find itself in the second-tier FTSE 250.
The demotion had been on the cards for some time, but it didn’t put directors off buying shares ahead of the formal confirmation by the FTSE committee in its quarterly index review. On 27 November, chief executive Ashley Almanza purchased 50,000 shares at 223.3p a pop, for a total outlay of £111,650. Mr Almanza was joined on 30 November by chief financial officer Himanshu Raja, who stumped up £112,550 for 50,000 shares, paying 225.1p a share.
G4S has undergone much change in recent years — including in the boardroom — and continues to execute on a strategic plan of November 2013 to return the business to growth. Analysts expect the first fruits this year, with double-digit earnings growth forecast. Further double-digit growth is pencilled in for 2016, putting G4S on a forward 12-month P/E of 13.9. The earnings outlook and a prospective 4.5% dividend yield, suggest that, after a troubled spell, G4S could be shaping up as a nice growth-and-income stock.
Shares of Poundland, which reached a 52-week high of over £4, had already weakened, before crashing on release of the company’s half-year results last month. Poundland reported a 26% fall in pre-tax profit for the six months to 27 September, and warned that trading conditions since had been “highly volatile”, and that performance for the quarter will depend “more than ever” on trading in the run-up to Christmas.
Nevertheless, directors have shown their confidence in the company by buying shares at the current depressed level. Last week, chief executive Jim McCarthy and chief financial officer Nick Hateley purchased 331,751 shares and 46,820 shares, respectively, both paying a tad above 212p. Mr McCarthy’s total investment was over £700,000, while Mr Hateley ponied up almost £100,000.
This year’s forecast profits fall puts Poundland on a high-looking P/E of 19.5 (at the directors’ 212p buy price). However, a big bounce is expected in 2016/17 — as the recent acquisition of 99p Stores Ltd kicks in — bringing the P/E down to a far more reasonable 12.9. The shares are up about 9% since the directors bought, and, while Poundland could still be decent value for the long term, price action in the short term will likely be driven by how Christmas trading goes.
Of course, director confidence isn't everything; there are plenty of other factors that could make a company a winner or a dud. Unfortunately, for many investors, work, family and leisure can leave little time for a thorough investigation of investment opportunities when markets are as volatile as they are at present.
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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.