FTSE directors tend to have superior knowledge of their businesses. So their purchases and sales of company stock are worth monitoring.
Recently, I spotted a large director purchase at FTSE 100 technology company Sage (LSE: SGE). Here’s a look at the trade and my take on it.
Director dealing
Regulatory filings show that on 23 January, Sage’s Chief Product Officer Walid Abu-Hadba snapped up 40,000 shares in his company at a price of £7.66 per share. This trade – which cost the company insider approximately £306,000 – increased his holding to 80,000 shares.
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This director dealing activity is notable for several reasons, in my view.
Firstly, it’s quite a large purchase. Not only is it a substantial buy in monetary terms (the largest at Sage in over five years) but it’s also big in relative terms as it has almost doubled the size of Abu-Hadba’s holding.
Given its size, I see it as a ‘high-conviction’ purchase. It suggests the insider is very confident Sage’s share price is set to rise (no insider buys company stock if they expect it to fall).
Secondly, as Chief Product Officer, he’s pretty high up in the organisation. This means he’s likely to have a good understanding of the company’s recent performance and its prospects.
And Abu-Hadba has a lot of experience in the technology industry. Previously, he served at tech giant Microsoft for 20 years. He’s also held senior positions at software companies Oracle and ANSYS.
My view on Sage shares
Now I already have a large holding in Sage, so I won’t be following Abu-Hadba and buying shares right now. However, if I didn’t already own the FTSE stock, I would certainly consider buying it on the back of this director dealing activity.
Sage is a high-quality company with a great track record when it comes to growth and it is highly profitable.
And it appears to have momentum at the moment. In a trading update posted in January, it advised that for the quarter ended 31 December 2022, it generated total revenue growth of 9% year on year and recurring revenue growth of 12% year on year. Impressively, recurring revenue from Sage Business Cloud was up 31%.
Sage has made a strong start to the year, in line with our expectations, as Sage Business Cloud solutions help more customers improve their productivity and resilience. While we are mindful of the current macroeconomic environment, we remain confident in our strategy for delivering efficient growth and we reiterate our guidance for the full year, as set out in our FY22 results announcement.
Sage CFO Jonathan Howell
It’s worth pointing out that Sage shares aren’t particularly cheap right now. Currently, the forward-looking price-to-earnings (P/E) ratio is about 25. This does add some risk. If growth was too slow, the shares may take a hit.
Personally though, I don’t see the valuation as a deal breaker. Software companies that have recurring revenues and high levels of profitability usually have higher valuations. And the P/E ratio here is a lot lower than that of US rival Intuit.
Overall, I like the risk/reward proposition here at present.
