Quarterly Director Deals
Our analysis of quarterly director deals provides you with a clear summary of important management transactions and how they can signal opportune times to buy, or sell, shares.
We track the performance of various companies following a director's purchase, and assess the results against a relative benchmark to determine whether outperformance can be achieved using director dealing information as a primary analysis tool.
The report breaks down director deals at selected small- to large-cap companies, and discusses individual director deals, helping you to gain an understanding of how these transactions can affect a company's share price.
Small-cap director purchases - January to March
The small-cap segment encompasses those companies with market values below £300 million, which form part of the FTSE AIM all-share index. The chart shows a clear trend where the share price, on average, tends to increase after a director's purchase. The average gain was 0.59%, with a range of 69% to -65%. On that day, 53% of the companies in the sample were above the acquisition price after the transaction, 42% were below the purchase price, and the balance of 5% traded at the entry level. A substantial rise in the share price may provide existing shareholders with an opportunity to take profits.
A selection of the best- and worst-performing director deals
| Market Cap (m) |
Company Name | Director | Buy date | Buy price | Value | Price 1 month after transaction |
Gain/ Loss |
|---|---|---|---|---|---|---|---|
| £7.4 | Daniel Stewart | Peter Shea | 5 Jan | 1.35p | £13,500 | 2.28p | 69% |
| £6.8 | Botswana Diamonds | J Teeling | 29 Mar | 4.25p | £21,250 | 6.75p | 59% |
| £10.9 | @UK | David Holloway | 17 Jan | 12.44p | £10,000 | 18.5p | 49% |
| £49.3 | Allergy Therapeutics | Peter Jensen | 30 Mar | 12p | £12,000 | 16p | 33% |
| £71.7 | RSM Tenon | Bob Morton | 18 Mar | 39.75p | £40,311 | 31.5p | -21% |
| £194.9 | Monitise | David Dey | 17 Feb | 26.6p | £19,817 | 20.75p | -22% |
| £2 | MBL | Steve Walsh-Hill | 3 Feb | 49.5p | £9,405 | 37.5p | -24% |
| £35.2 | Norseman Gold | Barry Cahill | 25 Mar | 45.54p | £13,663 | 16p | -65% |
Source: Chart and table compiled using raw data from Bloomberg.
Directors of listed companies are prohibited from trading shares in their company during closed periods (shortly before and after their results are beign finalised and published). They must also obtain authorisation form other directors of the company before making a trade.
Example of a small-cap director gain - Botswana Diamonds
Botswana Diamonds was admitted to AIM on 2 February of this year, and its first interim results were published on 23 March. The results revealed that the company was undertaking exploration work at sites in Botswana, one of the world's foremost areas of diamond production. Chairman John Teeling bought £21,250 worth of shares on 29 March, and the shares gained 59% in the following four weeks.
Example of a small-cap director loss – Norseman Gold
Norseman Gold's chief executive Barry Cahill bought £13,663 worth of shares in the company at the end of March. On 15 April, Norseman said that slow work on production at some of its sites meant that it would post an operational loss for its financial year, having made a small operating profit in the previous year. The shares dropped from 31.25p to 16.25p, and Mr Cahill incurred a 65% loss on his investment.
Mid-cap director purchases - January to March
The performance of the mid-cap segment, which consists of companies listed on the FTSE 250 index, showed similarities to small-cap companies. On average, the share price tends to increase in the immediate days following a director's purchase. However, the average increase in share price was not as strong as in the small-cap segment. After 20 working days, the average loss was -1.58%, compared to a gain of 0.59% in the small-cap space. On this day 45% of companies in the sample were above the initial purchase price, whereas 55% were below. The gain/loss ranged between 15% and -57%. Moreover, the losses in the mid-cap space were heavier than the average loss in the FTSE 250 index over the same period.
A selection of the best- and worst-performing director deals
| Market Cap (m) |
Company Name | Director | Buy date | Buy price | Value | Price 1 month after transaction |
Gain/ Loss |
|---|---|---|---|---|---|---|---|
| £478.8 | Devro | Paul Neep | 21 Feb | 241p | £14,629 | 277p | 15% |
| £742.1 | Fenner | Nicholas Hobson | 24 Feb | 306.7p | £6134 | 348.9p | 14% |
| £431.8 | Salamander Energy | Robert Cathery | 13 Jan | 272.8p | £272,800 | 307p | 13% |
| £993.9 | Booker | Karen Jones | 16 Mar | 55p | £37,125 | 60.25p | 10% |
| £631.2 | Marston's | Derek Andrew | 17 Feb | 101.75p | £101,750 | 93.15p | -8% |
| £425.7 | F&C Asset Management | Edward Bramsom | 23 Mar | 78.8p | £51,177 | 71.45p | -9% |
| £291.1 | Pace | Scott Sheldon | 9 Mar | 180p | £36,000 | 152.5p | -15% |
| £204.8 | CPP | Hamish Ogston | 23 Mar | 290.6p | £9880 | 124p | -57% |
Source: Chart and table complied using raw data from Bloomberg.
[1] Directors of listed companies are prohibited from trading shares in their company during closed periods (shortly before and after their results are beign finalised and published). They must also obtain authorisation form other directors of the company before making a trade.
Example of a mid-cap director gain - Devro
Devro non-executive director Paul Neep bought £14,629 worth of shares in the sausage-skin manufacturer on 21 February, the same day as the company released full-year results. Pre-tax profits were 44% higher for the year, helped by a rise in operating margins from 12% to 16%. The shares gained sharply following the news, as investors bought into the company thanks to the promising results.
Example of a mid-cap director loss - CPP
CPP specialises in the provision of insurance against credit card and identity theft. On 23 March, non-executive director Hamish Ogston bought almost £10,000 worth of shares in the company, CPP having reported a good first year as a public company earlier that month. However, on 28 March, after the market closed, CPP announced that the Financial Services Authority was investigating 'certain issues' regarding its products. CPP said that it had decided to suspend all sales of identity protection products, one of its main revenue sources. The shares almost halved the next day and continued to decline in the following weeks. Mr Ogston's purchase more than halved in value during late March and early April.
Large-cap director purchases - January to March
Usually, even director purchases of shares of FTSE 100 companies see gains ahead of the index. However, this time the director gains have tended to lag behind the overall index, with the average gain of 0.37% far below the 3.74% gain seen in the FTSE 100 as a whole. Single director deals of these large-cap companies are unlikely to be a market moving event for these large, often multi-faceted companies. The share price in this segment is predominantly affected by general stock market sentiment, macro-economic conditions and industry specific events, rather than a single director deal. At the end of the period, the maximum gain from following a director deal would have been 11%, while the maximum loss would have been 13%, a much narrower range than that for the other two segments.
A selection of the best- and worst-performing director deals
| Market Cap (m) |
Company Name | Director | Buy date | Buy price | Value | Price 1 month after transaction |
Gain/ Loss |
|---|---|---|---|---|---|---|---|
| £35,722.8 | SABMiller | JA Manzoni | 22 Mar | 2020p | £14,443 | 2250.5p | 11% |
| £3968.5 | Weir Group | Lord Smith | 17 Mar | 1560p | £48,350 | 1729p | 11% |
| £69,610.5 | GlaxoSmithKline | Ap Witty | 25 Mar | 1170p | £10,074 | 1265p | 8% |
| £22,495.9 | Imperial Tobacco | Iain Napier | 25 Mar | 1910p | £10,028 | 2052p | 7% |
| £6130 | Smith & Nephew | P Kirby | 29 Mar | 693.69p | £45,090 | 670p | -3% |
| £39,389.1 | Anglo American | Sir John Parker | 21 Feb | 3238p | £98,864 | 2993p | -8% |
| £11,584.7 | BAE Systems | D Olver | 18 Feb | 337.6p | £22,167 | 306.4p | -9% |
| £85,315.4 | Rio Tinto | Bret Clayton | 18 Feb | 4433p | £119,485 | 3874p | -13% |
Source: Chart and table complied using raw data from Bloomberg.
[1] Directors of listed companies are prohibited from trading shares in their company during closed periods (shortly before and after their results are beign finalised and published). They must also obtain authorisation form other directors of the company before making a trade.
Example of a large-cap director gain - Imperial Tobacco
Imperial Tobacco's non-executive chairman Iain Napier saw his share purchase of 25 March gain by 7% over the next few weeks, as investors followed his lead and bought more shares in the company, after a promising trading update on 24 March. The short update said that the company expected to meet forecasts, with an increase of around 2% in revenues. Encouragingly, the firm also said that emerging markets were showing good growth, helping to offset a weak performance in developed markets such as Spain.
Example of a large-cap director loss - Rio Tinto
Miner Rio Tinto's operations in Australia were hit by difficult weather conditions in February and early March, as tropical cyclones hit Australia. The firm said that shipped tonnages of iron ore, one of the company's most important products, would be affected for the first quarter. Director Bret Clayton saw his 18 February purchase of almost £200,000 in shares decline in value by 13% in the following month as negative sentiment dogged the share price.
Conclusion
Overall, it seems that director deals may uncover successful investment opportunities, particularly in the small-cap space, as the share price, on average, tends to outperform the benchmark index. Less liquidity and wider market spreads may account for the larger price movements in small-cap stocks. Director purchases of shares in mid-cap and large-cap companies are less relevant, however, as the share price performance of these companies appear to be more influenced by general market sentiment, industry-specific events, and macroeconomic factors. While a single director’s purchase may be taken as a vote of confidence in the company, the multitude of factors that affect the stock price for mid-to-large cap companies means the possible gains from a director deal may be muted.
In the greater scheme of things, trading solely on director deals can be risky. One should have a good understanding of the company and use this data in conjunction with technical and fundamental indicators. IG offers a range of resources to help you make sense of the market, including the latest broker ratings, daily market commentary and FTSE Factsheet, among others. As the examples in this report show, there may be other underlying reasons why the director is making a purchase in the company and it is important to consider these factors when making a decision to follow a director’s purchase. At the very least, director deals provide a useful starting point for identifying companies to further research for potential future investments.
Updated on 6 June 2010
Disclaimer: IG Index provides an execution-only service. The material above does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of, or solicitation for, a transaction in any financial instrument. IG Index accepts no responsibility for any use that may be made of these comments and for any consequences that result. This communication must not be reproduced or further distributed. IG Index is authorised and regulated by the Financial Services Authority (FSA Register number 114059).