MIDAS SHARE TIPS: Follow directors' deals - Vedanta boss splashes out £64m, but PayPoint men cash in
Waiting game: Anil Agarwal hopes to simplify Vedanta's structure
Directors are forbidden from trading on
inside information, but their share purchases and sales can provide
investors with some interesting pointers.
Midas analyses some of the
most significant trades each quarter, using data from the website
Directors Deals.
Trades on AIM are monitored in Midas Extra, our online subscription service at thisismoney.co.uk/midas-extra.
BUYING
Early last month, Indian entrepreneur Anil Agarwal spent more than £64million buying shares in Vedanta Resources, the oil and mining group where he is executive chairman.
The purchases were a clear sign of his commitment, but should less well- heeled investors buy the shares?
Agarwal founded Vedanta in 1976, floated it in London in 2003 at 390p and has been a keen buyer of stock since. So much so that he owns shares worth £2billion, equivalent to almost 65 per cent of the company.
Despite his enthusiasm, the FTSE 100
company’s shares have had a rough ride in recent years, falling from
almost 3000p in April 2010 to 1169p, reflecting concerns about the
outlook for commodities and worries about Vedanta’s complex structure.
Like many large natural resources groups, it dabbles in mining all round the world and has a huge oil and gas division to boot. Some of its assets are part owned by local governments or other private enterprises.
The
company structure is difficult to understand and many investors prefer
not to bother. But Agarwal has applied for permission to simplify it and
is waiting for the Indian courts to approve his plans. Bureaucracy is
notoriously slow in India, but even pessimists expect an approval in the
first half of this year.
Meanwhile,
the business has several fundamental advantages. It has a diverse range
of interests and its costs are among the lowest in the industry.
This
is not a stock for the cautious but supporters believe the price could
hit 1500p this year. Adventurous investors prepared to take a long-term
view could do worse than follow in Agarwal’s footsteps.
SELLING
Directors’ sales do not inspire confidence. On December 12, David Newlands, chairman of PayPoint, sold 300,000 shares at 840p, raising £2.5million. The company specialises in payment services that enable consumers to pay bills, top up mobiles, transfer money and buy transport tickets in local shops.
At the same time, David Morrison, a non-executive director, appeared to sell 1.6million shares, raising £19.4million.
Further investigation
reveals that Morrison owns an investment management firm, Prospect, some
of whose customers have been investors in PayPoint since before it
floated in 2004.
Having
seen the shares soar from just over 200p, they chose to take some
profits. Newlands is selling shares on behalf of his children.
The
group handles more than £12billion a year and has operations in
Britain, France, America, Canada and Romania. It is also behind other
ventures, such as Collect+, which enables consumers who have bought
goods online to collect them from local stores, and it has a
fast-growing automated car parking division, where drivers can pay for
parking via their mobile phones.
Midas
Extra, the subscription-only online service, recommended PayPoint in
August 2012 at 708p. Midas Extra looked at PayPoint again a week before
Newlands’ sale, at which time the shares were 850p.
We
suggested investors should sell a few but keep at least half their
holdings. The shares dipped slightly in December but they have done well
this year and are now 883p.
At this stage, investors who bought in August should definitely sell a third to half of their shares. If the chairman is taking some profits and selling on behalf of his children, it is almost certainly sensible to do likewise.
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