Interactive Investor

Insider: Bosses bag bargains as prices plunge

22nd January 2016 13:28

Lee Wild from interactive investor

It doesn't normally take long to weed out the most interesting director deals each week. And, with stockmarkets in freefall, one might imagine insiders would take the opportunity to load up on cheap stock.

Well, one wouldn't call it a stampede exactly, and there have been few share purchases of a decent size. Still, some head honchos have been tempted to put their money on the table and bet that the sell-off is overdone.

Diana Brightmore-Armour, former boss of corporate banking at Lloyds, is in buying mood. She sits on the board at Berkeley Group as a non-executive director, and has just snapped up 1,000 shares in the property giant at £34.64.

Dillistone, the supplier of software to the recruitment industry, has seen action, too. In its tenth year on AIM, chairman Mike Love has spent £41,700 on 60,000 shares at 69.5p. He now owns almost 990,000 shares, or 5% of the company.

And we've just heard that Sir Donald Cruickshank, non-executive chairman at 7digital, has put £40,000 into the digital music and radio services firm.

We first covered 7digital in November 2014, a month after the shares had doubled briefly to over 40p. The market had caught wind that its technology would be used on Will.i.am's new smartwatch, and a deal with Panasonic, one of Japan's biggest electronics firms, was in the bag.

That optimism quickly faded, though, and the market crash this week plunged shares in the loss-making business to a new low at 5.75p. A decent update this Thursday was largely overlooked as investors focused their attention on wider macro issues; but not Sir Donald.

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While others were FTSE-watching, the former London Stock Exchange chairman bought 653,000 7digital shares at 6.125p each, taking his stake to 943,000. By lunchtime Friday they were trading up 27% at 7.8p. That's an £11,000 paper profit overnight. Nice work!

Can they go further? Brokers have backed the company for many months, and finnCap still thinks the shares are worth a colossal 38p. "Today's trading update reveals continued exceptional growth in the core business of licensing the music streaming platform, offset by steady decline in the download content, leaving FY2015 sales 'broadly similar' to the previous year," said analyst Lorne Daniel Thursday.

Revenue growth is "lower than hoped", so forecasts are trimmed, but the company should be at around breakeven on monthly basis towards the end of this year and making a "healthy" profit in 2017.

Investors might have to wait a while for 38p, but broker Investec believes that if the acquisition of French digital streaming music provider Snowite happens in March, as planned, the shares, on an implied price/earnings (PE) ratio of 10 times in 2017, "should look cheap".

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.