Directors' Dealings

The theme which we have been highlighting here in recent issues – that of more and more directors feeling it is time to bank gains in their companies' shares – has gained increasing prominence over the past couple of months, gaining widespread press coverage.

High-profile executives such as Berkeley Group's Tony Pidgeley and Intertek's Richard Nelson have pocketed huge amounts - £8.9 million and £7.7 million respectively before tax – by selling around a third and half respectively of their own equity. In the SmallCap and Aim markets, the same process has been taking place, with several massive sell-offs taking place in additional to a steady stream of smaller deals.

Indeed, figures from broker Charles Stanley show that in September, up to the 18th, £49 million more was pocketed by directors from dealings in their own companies' shares than was spent, with only two trading days in that period seeing more buying than selling. In stark contrast, 12 out of 20 days in the month of August saw more buying than selling, with an overall net sales figure of £6 million.

But, despite this evidence, the trend is not quite as alarming as it might seem. For a start, only two trading days up to 18 September actually saw more director sales than purchases. The figures, by value, are inevitably distorted by a relatively small number of very large sell trades, where board members have, quite understandably, been converting the paper wealth they have built up as part of their employment.

Millionaires' row

Among the most significant of these big sell-offs took place at Lambert Howarth, the footwear, homeware and accessories supplier that has a close relationship with Marks & Spencer but is now expanding in Europe. Helped by a good-looking set of recent interim results, the company's shares have been experiencing strong demand, and now trade at 250p, up 46 per cent for the last year. Following the interims, chief executive Garry Hogarth and strategic development director Richard Brainin sold 850,000 shares each, reaping more than £2.1 million apiece in proceeds.

Institutional investors in turn snapped those shares up readily. It is easy to see why, given that analysts are expecting £11 million of pre-tax profits for the current year as a whole, with dividend payouts expected to total 10p a share (from earnings of 30.7p). This puts the shares on a prospective p/e ratio of 8.1 and a prospective yield of four per cent.

Specialist mortgage provider Kensington Group's shares have performed even better this year, up 164 per cent from their low of 132.5p to 349.5p in a strong, and for many, long-overdue run of good form. For non-executive Martin Finegold, the price reaching 328p was time to act, and he promptly reduced his still-substantial stake by a cool million shares, collecting £3.3 million for his troubles. Since then, the company has announced its largest ever mortgage-backed securitisation, valued at £800 million. Interims for the six months to May showed pre-tax profits raised 17 per cent to £15.6 million.

But even this amount was superseded by The Innovation Group's former boss (and now vice-chairman) Robert Terry, who took advantage of the share price's climb up from a low of 5.43p, to pocket £3.6 million at 16p on 3 September. The company, which sells insurance processing software, reported nine-month figures in August, showing off pre-tax profits of £1.9 million, down from £14.5 million for the previous year.

Adair puts money on the line at Melrose...while Jiminez jumps in again at Keller

The small cap oil exploration scene will never be a suitable place for widows and orphans to dabble, but Melrose Resources is certainly proving that it can be a place where talk is backed up with delivery, in contrast to events at certain other ventures. Indeed, the company actually managed to make a profit in the six months to June when stripping out exchange rate losses, reducing sterling-denominated losses from £1.7 million to £311,000.

The company has also set itself a target of producing the equivalent of 16,000 barrels of oil per day by the end of 2005 (in the form of gas) from wells in the US, Egypt and Bulgaria. To help fund the expansion necessary to get to this stage, Melrose raised £18.1 million recently in a placing and open offer, with executive chairman Sir Robert Adair shelling out £8.8 million of that. House broker Seymour Pierce expects pre-tax profits of £23.4 million and 24.8p of earnings per share next year, putting the company on a prospective p/e ratio of only 5.6 for 2004.

Last mention must go to our old friend Mr Pedro Lopez Jimenez, who has become a regular in this column through his repeated purchases of shares in Keller, the ground engineering group that he joined as non-executive last year, (after selling the group a controlling stake in his Spanish business). Jimenez's latest purchase saw him pick up an extra 500,000 shares for £1.2 million, bringing his stake to 6.6 per cent. At this rate he'll soon own the lot.