Interactive Investor

Insider: chiefs snap up cash rich dividend stock at two-year low

Directors at this AIM company have locked in an 11% dividend yield, with analysts backing the shares to recover after a poor start to 2024. There’s also been lots of director dealing at Watches of Switzerland and PZ Cussons.

12th February 2024 08:52

by Graeme Evans from interactive investor

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Four directors of Serica Energy (LSE:SQZ) have spent £391,000 increasing their stakes after the North Sea production firm’s high-yielding shares traded at the lowest level in two years.

The buyers included Mitch Flegg, even though he is stepping down as Serica’s chief executive having overseen the integration of the Bruce, Keith and Rhum assets acquired from BP in 2018, and last year’s purchase of Tailwind Energy.

Serica said that Flegg left the company in its best ever health, with 11 fields this year expected to produce between 41,000 and 48,000 barrels of oil equivalent a day.

Cash rich Serica also distributed a total dividend worth £75 million in its most recent financial year, approaching ten times 2020’s maiden payment and leaving the shares on an 11% yield.

The company’s focus on increasing shareholder returns helped to make Serica one of the most traded shares on AIM in 2023, although its valuation has fallen to £735 million this year.

The latest selling pressure came after Serica’s production figures for 2023 neared the bottom end of its previous guidance and 5% lower than house broker Peel Hunt’s forecast.

The figures included volumes from the Tailwind assets, which are operated by Dana Petroleum and have given Serica a broader spread through interests in two North Sea hubs.

In terms of new projects, Serica said last week that the Buchan and Belinda fields offered the potential to replace reserves and for incremental production from 2026 onwards.

The shares closed on Friday at 191p, but Peel Hunt had a price target of 351p prior to attending a briefing hosted by Serica for analysts and investors in Edinburgh last week.

It said: “In spite of slightly lower 2023 production, we believe Serica remains in a strong position and is definitively funded for all planned near-term work programmes and shareholder distributions via an ongoing dividend.”

US bank Jefferies is also a supporter, believing the shares deserve to be at 280p. It said: “2023 has been a harder operational year than expected, largely due to facility uptime and which likely remains a key challenge to improve on for the new management team.”

The search for a chief executive is being led by senior independent director Malcolm Webb, with chair David Latin running the business in the meantime.

Latin, who has over 30 years of energy industry experience, oversaw the formation and operation of the Bruce, Keith and Rhum assets for more than five years while at BP.

He led the buying of Serica shares through Tuesday’s £215,429 investment at around 183p, the same day as Webb bought £30,000. Flegg spent £142,387 the following day, with non-executive director Sian Lloyd-Rees buying a £4,000 stake when shares were 187p on Thursday.

Time to buy Watches of Switzerland

Senior directors of Watches of Switzerland Group (LSE:WOSG) and PZ Cussons (LSE:PZC) led by example last week after spending a combined £341,000 on their own heavily-sold shares.

Board chair Ian Carter and finance chief Anders Romberg made purchases with the Rolex and Omega partner down 40% this year. Chair David Tyler’s investment took place after the Imperial Leather and Carex owner slashed its dividend due to the impact of a currency crisis in Nigeria.

Watches of Switzerland ended the week strongly at 393.8p after the company disclosed on Friday that Carter spent £188,430 on 50,000 shares at an average price of 376.9p. Romberg’s purchase of £103,000 at 390p was disclosed after the closing bell.

Their support followed the previous day’s third quarter update, when revenues fell 3% to £397 million but no change was made to the downgraded full-year guidance given in January.

US sales were strong but peak season spending slowed in the UK as consumers focused their discretionary spend on categories such as fashion, beauty and hospitality.

The disappointing festive performance put shares back under pressure after confidence was shaken in the summer by the surprise move of Rolex to buy Swiss retailer Bucherer.

City bank Jefferies last week lowered its mid-term estimates by 20% and cut its price target from 700p, but continues to have a “buy” recommendation.

It said: “For now we forecast a limited UK cyclical rebound, but no fundamental change in the nature of key supplier relationships globally. Our downgraded price target of 460p reflects likely enduring concerns on the latter.”

Will this director clean up?

At fellow FTSE 250-listed stock PZ Cussons, shares are down by a third this year and by around 50% on May’s level. The selling comes amid the fallout from the 70% year-on-year decline of the naira in its largest market of Nigeria.

Half-year profits last week fell 24.3% to £26.1 million, with the prospect of volatility over the rest of the year prompting the “prudent step” to cut the interim dividend by 44% to 1.5p.

The events in the west Africa country have offset a much-improved performance in the UK as the company builds a “higher growth, higher margin, simpler and more sustainable business."

Tyler bought his £50,000 worth of shares on Thursday at a price of 106.9p, which compares with 99.7p at Friday’s close.

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