Directors’ Dealings by Jenny Lowe

A number of signals now suggest the small cap sector is in for a strong recovery, with a growing number of directors buying their own shares at some very low valuations

Star performing UK smaller companies fund manager Harry Nimmo (of Standard Life) says the sector has reached a turning point with the next five years set to bring the best returns for some time.

He points to a spike in director buying activity in 1998 that preceded a bull market over the next two years and another in 2002 which heralded a strong recovery and powerful bull run over the following five years. If Nimmo’s predictions are right, then investors should take heed from those directors that have been out in force over the last month.

Electronic security systems developer Newmark Securities is a case in point. Having witnessed one of the most volatile periods in its history, its directors are confident the worst is behind them, having recently and collectively spent £115,000 on shares.

Maurice Dwek, chairman, comments that ‘markets have continued to be difficult with customers looking to delay certain projects and generally being more conservative in their investment plans.  However, we have a strong portfolio of products and an excellent reputation in our chosen fields and firmly believe prospects for the longer term remain encouraging.’

Dwek picked up £57,800 worth at 1p each, whilst non-executive directors Alexander Reid and Mark Mediam bought £50,000 and £7,200 respectively, also priced at 1p per share.

Zinc waste recycler ZincOx has had a rough ride in the onslaught of the credit crunch, with its shares having collapsed to 25.5p last November from a 2007 high of 427p. However, since signing feed agreements with Korea’s nine largest electric arc furnace operators, a number of directors have been snapping up shares.

Non-executive director Rod Beddows purchased 30,000 shares at 83.5p each, paying just under £25,000, whilst fellow non-executives Jerry Saville and Jeff Hewitt bought £3,280 and £8,250 worth at 65.6p and 82.5p respectively. Executive director Jacques Dewlanes spent just short of £1,700 at a price of 83.5p each.

Over at Edinburgh-based investment management and corporate advisory play Sigma Capital Group, it seems the tide is beginning to turn as directors demonstrate their confidence in the company’s future. Following preliminary results published last month, chairman David Sigsworth, said, ‘While the trading environment remains tough, Sigma has a strong balance sheet, substantial cash resources and significant recurring revenues’. Having also cut costs, he added that ‘with these foundations in place and clear objectives for our three businesses, as we emerge into more stable trading conditions, we are well placed to take advantage of market opportunities.’

So it comes as no surprise that he, and a number of his colleagues, have been buying in bulk. Sigsworth himself has just bought at 8.625p per share, joined by investment director Mark Hogarth, with both having forked out just under £5,000 each for the privilege. Chief executive Graham Barnet spent just under £20,000 in another purchase and finance director Marilyn Cole spent just under £10,000.

Selling signals
Despite an increasing number of directors out on a buying binge, there have also been some selling shares over the past month. John Woolgar, non executive director over at AIM listed gold producer Goldplat, realised his entire holding of 450,000 shares at 10p each and Delek Global Real Estate director Elisha Flax sold £1,575 at 45p each.