Interactive Investor

Insider: bosses snap up Haleon shares and a blue-chip dividend stock

1st August 2022 08:01

Graeme Evans from interactive investor

Directors are spending hundreds of thousands of pounds on shares in this FTSE 100 pair. We reveal who they are and why they’re doing it. There’s also heavy buying at this small cap after a major profits warning.

Rio Tinto (LSE:RIO) boss Jakob Stausholm and Haleon (LSE:HLN) chairman Sir Dave Lewis have revealed £700,000 of insider purchases during a challenging week for their respective companies.

Stausholm bought £485,600 worth of shares at a price of 4,856p, having earlier disappointed investors with a bigger-than-expected cut in Rio’s top-ranking dividend.

The purchase by Stausholm was revealed on Friday morning and helped the Anglo-Australian miner to finish the week at 4,924.5p, a recovery from the 4,644.5p seen after Wednesday’s dividend cut but a long way short of the 6,000p in early June.

The half-year award of $2.67 a share was still the second highest in Rio’s history, but analysts had expected a payout ratio of at least 60% of underlying earnings rather than the 50% declared.

The decision pointed to a more cautious outlook, with the iron ore market facing near-term headwinds from sluggish demand in China, and the company committed to increasing capital expenditure in 2023 and 2024 in support of areas such as decarbonisation.

Analysts at Deutsche Bank see the potential for Rio to declare a second half payment of $3.28 a share and a special dividend of $1 a share, which would bring the payout ratio to 70%. The ratio has averaged 74% over the past six years, with the peak being in 2017 at 83%.

The German bank has a “hold” recommendation and target price of 5,800p, whereas UBS is more cautious after trimming its estimate by 100p to 4,300p following the interim results. It said: “The iron ore price is the key driver of the stock and we see the risk/reward as skewed to the downside despite high cash returns near term.”

Hard start for Haleon after GSK demerger 

Meanwhile, several Haleon directors have taken their first opportunity to buy shares since the Sensodyne and Centrum maker demerged from parent company GSK.

The buyers were led by Sir Dave after the former Tesco chief executive spent £200,000 on shares on Wednesday, shortly after the consumer healthcare company upgraded full-year revenues guidance in its maiden trading update.

Two other non-executive directors spent £65,000 on the London-listed shares, while a person connected with the company’s chief supply officer invested £60,000.

Their purchases were at prices between 299p and 317p, but Haleon closed the week at 291.8p to leave the FTSE 100 newcomer down by 11% on its 330p starting point on 18 July.

Potential downsides highlighted by analysts include the overhang from the November expiry of lock-ups agreements on the 45% retained stakes of GSK and Pfizer. There are also concerns about the amount of GSK debt that’s been transferred to the Haleon balance sheet, which has left the company trading with high “day one” leverage of four times earnings.

Deutsche Bank last week initiated its coverage with a target price of 300p. It highlighted solid prospects and a strong portfolio of brands but also noted “leverage and trade down risk”.

Share buying after Sabre's crash 

A record low for shares in Sabre Insurance Group (LSE:SBRE) has been followed by £150,000 of boardroom purchases after the motor cover specialist reassured on its dividend policy.

Chairman Andy Pomfret, chief executive Geoff Carter and three other directors made their investments after last week’s interim results provided more details on the accelerated levels of claims inflation behind a recent profit warning.

Crucially, Sabre said its balance sheet was strong enough to allow an interim dividend of 2.8p a share for payment on 22 September. It said it intended to stick by its existing dividend policy, which is to distribute 70% of profit after tax plus room for a special dividend.

The FTSE All-Share company reported a solvency ratio of 173%, a level that only drops to the top end of Sabre’s target range of 140%-160% after the payment of the dividend.

Peel Hunt said the move represented a “welcome reversal” on the company’s guidance a fortnight earlier that it would pay a third of this year’s post-tax profit.

The interim results showed the margin impact of costs rising faster than Sabre’s prices can keep up with, meaning its combined operating ratio neared 100% compared with 74.4% the previous year. This reduced earnings per share to 1.39p.

The company distributes its products through broker relationships, as well as directly to customers through its brands Go Girl and Insure2Drive. Its shares listed in December 2017 at 230p for a market value of £535 million, but fell to 102p last week.

Pomfret, whose £98,000 investment accounted for the bulk of the boardroom purchases, bought his shares at 105.5p on Tuesday. The stock closed the week at 111.2p but Peel Hunt has a price target of 210p with an “add” recommendation.

However, the broker warned Sabre’s competitiveness is likely to remain under pressure as the company pushes up its motor rates against a softer market in order to protect margins.

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