My assumption is that company directors buy the UK shares of their own businesses for one reason – because they think they’ll make money.
That said, sometimes a share purchase can be for cosmetic reasons. After all, it can look bad if the top managers don’t think the companies they run are worth an investment.
However, if the purchase of shares is big enough to ‘hurt’, maybe that’s proper skin in the game. So it’s worth looking at businesses with recent director share purchases.
Cyclical recovery and growth
Small-cap company Braemar (LSE: BMS) is a good example. On 23 May, chief executive James Gundy bought 6,600 shares at a price of 290.5p each, costing £19,173.
Maybe that’s small-fry compared with a typical chief executive’s annual pay packet. However, the purchase topped up his holding in Braemar to 778,765 shares.
The business provides “expert” investment, chartering and risk management advice to the shipping and energy markets. However, the multi-year financial and trading record shows volatility in earnings, cash flow and shareholder dividends.
That all suggests the presence of cyclical risks in the business and the sector. The share price chart tells a similar story:
Economic times have been challenging everywhere over the past few years. But I’m optimistic that we’ll see improvements ahead. Meanwhile, the stock’s been recovering from the 2020 lows it hit during the pandemic.
Can that recovery continue? Well, on 23 May, the company released its full-year results report for the period to 29 February. Revenue came in flat, but underlying earnings per share dropped by 21% year on year.
Nevertheless, the directors increased the shareholder dividend by 8% and issued an optimistic outlook statement.
Gundy described the performance of the business as “strong”, and pointed to the order book, which ended the year up 47% at just under $83m.
A positive outlook
The firm’s focusing on generating sustainable shareholder returns across the shipping cycle. Part of the plan has seen the business hire more brokers and make selective acquisitions in the fragmented shipbroking market.
The overall growth strategy aims to build greater resilience into the enterprise. Meanwhile, operating margins are improving and the overall market outlook’s positive, Gundy said.
At 297p, the stock’s already just over 200% higher than its low point in 2020, and that fact emphasises the cyclical risks shareholders must be prepared to carry. We never know when the next general economic or geopolitical shock will occur. But it’s clear how far the share price could fall if things take a downturn.
Nevertheless, Gundy’s certainly eating his own cooking with his personal share purchases. I think that speaks volumes about the confidence he has in the immediate future of the business.
Meanwhile, the forward-looking earnings multiple for the current trading year is around eight, and the anticipated dividend yield is about 4.7%.
I think that valuation looks undemanding. Therefore, I’m digging in with further research and considering some of the shares for my diversified portfolio now.
