Despite all the fanfare around the stock market rally, plenty of stocks are trading at or near to record lows. City writer Graeme Evans picks out a trio of laggards where directors are buying big.
A £200,000 purchase of Bytes Technology Group Ordinary Shares (LSE:BYIT) shares looks well timed after the company’s long-serving boss made his move just as valuations surged across the FTSE 250 index.
Wednesday’s investment by Neil Murphy, who has run the Microsoft reseller since 2000, generated a paper profit of £13,000 over the following day as Bytes shares jumped 8% in a bumper session for technology and growth stocks.
The wave of buying, which helped send the FTSE 250 index 3.4% higher, was triggered by hopes that interest rates are near their peak and a bullish update by Meta Platforms Inc Class A (NASDAQ:META).
Bytes closed the week at 426.6p, which compares with Murphy’s average purchase price of 393p and December 2020’s flotation level of 270p when South Africa’s Altron listed the business in London and Johannesburg with a valuation of £646 million.
Surrey-based Bytes is one of the UK's leading providers of IT software offerings and solutions, with a focus on cloud and security products. Its involvement with Microsoft Corp (NASDAQ:MSFT) dates back to 1996 as one of the tech giant’s first resellers in the UK and has evolved to become one of Microsoft's largest partnerships in the country.
When Bytes last reported results at the end of October, it highlighted robust demand in both commercial and public sectors amid strong appetite for solutions around cloud adoption, digital transformation, hybrid data centres and remote working.
Half-year revenues rose 28% to £93.5 million and gross profits beat hopes at £65.5 million, but weaker-than-expected cash conversion and the impact of soft guidance from Microsoft in an update the previous evening meant shares finished the session down 15%.
However, Berenberg noted that Microsoft’s weaker outlook was largely due to consumer-focused areas where Bytes has limited or no exposure, pointing out that the tech giant was more optimistic in relation to intelligent cloud, dynamics and security.
The broker responded to the Bytes results by raising its earnings estimates and reiterating a 500p price target. Counterparts at Numis added at the time: “The shares are premiumly-rated, but we believe momentum remains positive and that it is well positioned to weather any potential weakening in the demand environment.”
Barclays Capital had a price target of 640p, believing the company is well placed to continue its long-term track record of double-digit organic growth.
- FTSE 100 index hits record high despite looming recession
- 10 shares to give you a £10,000 annual income in 2023
- 10 of the best mining shares for dividend investors
Shares peaked at 572p towards the end of 2021 but spent almost all of 2022 below 500p as sentiment towards tech stocks weakened. It paid an interim dividend of 2.4p share in December as part of a policy to distribute 40% of post-tax pre-exceptional earnings.
Murphy, whose overall 1.58% stake in Bytes is worth about £16 million, also bought £170,000 worth of shares in early January at an average price of 380p.
Light at end of tunnel for this mid-cap?
He wasn’t the only FTSE 250-listed tech industry boss to buy shares last week, with Darktrace (LSE:DARK) chief executive Poppy Gustafsson spending £108,000 in support of the cyber security firm.
She did so with shares trading near to a record low after New York hedge fund Quintessential Capital Management earlier disclosed a short position of 0.86% and questioned the company’s accounting policies in a 69-page report.
Gustafsson issued a robust defence in a statement on Wednesday before later disclosing the purchase of shares at a price of 225p. Darktrace, which this week launched a share buyback programme, closed on Friday evening at 243.1p.
A share stuck in reverse
Shares in Motorpoint Group (LSE:MOTR) rallied on Friday after the second-hand car retailer disclosed that chairman John Walden had made an investment in the company worth £200,000.
His purchase was made on Wednesday at 145.7p and followed a recent profit warning triggered by higher financing costs and falling electric vehicle values.
Motorpoint added that macroeconomic conditions were likely to impact sales and profitability for the foreseeable future but that the headwinds also created a significant opportunity to grow market share and “become a highly profitable market leader”.
- Is now a good time to start considering smaller companies?
- Stockwatch: this small-cap share may have reached an inflection point
The ecommerce retailer trades as Motorpoint.co.uk and Auction4Cars.com and has a UK network of 19 sales and collection branches.
It generated revenues above £1 billion in the first nine months of the financial year as it works towards a medium-term target for annual sales of over £2 billion. It also offered investors some encouragement through a return to retail volume growth in December and into January, having been impacted by three years of industry undersupply.
Numis Securities recently reduced its price target by 20p to 180p, adding that the company looked to be well positioned for when the market recovers. The shares jumped 5% to 148p after Walden’s purchase was disclosed on Friday morning, but later fell back to close the week at 142.5p.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.