Directors were splashing the cash last week at Morrisons (LSE: MRW), Soco International (LSE: SIA) and Cineworld (LSE: CINE).
Is the time ripe for investors to follow the lead of the directors, and buy into these three companies?
Cineworld
Since joining the stock market in 2007, Cineworld has increased its profits from £12m to £67m — representing a compound annual growth rate of 28%. The FTSE 250 firm has expanded organically and by acquisition (the Picturehouse chain in 2012 and Cinema City last year) to become Europe’s second-largest cinema group.
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In its recent annual results, the company said 2015 “has the makings of a strong year with great titles to look forward to”. Non-executive director Rick Senat splashed out £130,000 (equivalent to two-and-a-half times his annual salary) to buy 26,937 shares at 482.75p a time.
The purchase doubled Senat’s previous shareholding, and he paid 19.6 times earnings (a little below the 20x rating of the FTSE 250 as a whole). The share price currently remains around the same level. If you’re looking for a well-managed, fairly “defensive” mid-cap with decent growth prospects (and a reasonable dividend to boot), Cineworld could be worth a closer look.
Soco International
Soco International is another FTSE 250 firm. Like other oil companies, Soco has seen its shares fall heavily with the collapse of the oil price over the last six months or so. In it’s favour, Soco has a break-even in the low $20s a barrel, no borrowings and cash of $166m.
In its recent annual results, management said the cash on the balance sheet, plus operating cash flow, is sufficient to meet ongoing capital expenditure, but also gives the company the capacity “to take advantage of opportunities in the market as they arise”.
Since the results, non-executive director Ettore Contini has been buying shares with a vengeance, splashing out over £2m in three tranches at prices of between 142.6p 174.2p. Contini has been joined by smaller purchases from chairman Rui de Sousa (£164,000 at prices of 148.2p and 179.5p) and non-exec John Norton (£18,000 at 180p a share).
At a current price of 170p (less than the high all three directors have been willing to pay), Soco’s shares are trading at 62% below their 52-week high. If you’re looking for a potential recovery stock in the oil sector, this company appears to merit further investigation.
Morrisons
David Potts — who had over 40 years’ experience of retailing with Tesco — took up the post of chief executive of Morrisons seven days ago. He’s lost no time in nailing his colours to his new employer’s mast. Last Thursday, Potts bought 508,000 Morrisons shares at 205.85p a pop — an investment of just over a cool £1m.
Morrisons, Tesco and Sainsbury’s — who have all appointed new chief executives within the last eight months — are battling the rise of no-frills discounters, such as Aldi and Lidl, and the growth of upmarket grocers, such as Waitrose. Tesco’s Dave Lewis (CEO from September) and Sainsbury’s Mike Coupe (CEO from July) have been talking the talk, but Potts is the only one to have put his money where his mouth is since taking up his post, by buying shares in the market.
Investing in companies in sectors that are unloved can be very profitable — for example, banks in the depth of the financial crisis, and big pharma firms when “patent-cliff” fears were at their height. If you’re looking for a contrarian bet in today’s troubled supermarket sector, Potts’s actions-speak-louder-than-words move may be a buy signal worth considering. You can still pick up the shares at around the price Potts paid.
