Interactive Investor

Insider: this director bought Rolls-Royce shares even after huge rally

27th February 2023 09:37

by Graeme Evans from interactive investor

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The British engineer is worth double what it was in October but is still worth buying, thinks one board member. There have been share purchases at other well-known companies too.

Rolls-Royce aerospace

Turbocharged Rolls-Royce Holdings (LSE:RR.) shares have delivered a rapid paper profit for a director who backed her former BP colleague’s first set of results in charge of the engines giant.

Dame Angela Strank’s purchase of 9,847 shares at 126p was made during Thursday’s best session for two years, when Rolls shares jumped 24% from their 107.6p starting point.

The FTSE 100 stock ended the week at 136p, meaning a gain of 8%, or £1,000 for the non-executive director who joined the Rolls board in 2020. The stock had been as high as 142p prior to the London market’s US-led sell-off on Friday.

Dame Angela spent four decades at BP, most recently as head of downstream technology and chief scientist, and worked at the oil giant alongside new Rolls boss Tufan Erginbilgic.

The engineer, who was chief operating officer of BP’s downstream business between 2014 and 2020, made an immediate impression with investors on Thursday by flagging that Rolls is capable of “materially higher profit, cash flows and returns”.

More details on Erginbilgic’s turnaround plans are due in the second half of the year, including a strategic review focused on identifying the most profitable opportunities.

His optimism came as a revival in civil aerospace engine flying hours under former boss Warren East led to £502 million of free cash flow in 2022, much bigger than the City’s £64 million forecast and an outflow of £1.5 billion the previous year.

Two other FTSE 350 companies — recruitment firm Hays (LSE:HAS) and biomass power station business Drax Group (LSE:DRX) — also saw boardroom share purchases in the wake of their results on Thursday.

The £125,000 of Drax shares bought by chief financial officer Andy Skelton were at prices between 637p and 645p, compared with 674p the evening before the results.

The company reported a big jump in underlying earnings to £731 million, but warned that its North American production of pellets from forestry and agricultural by-products faced continued inflation headwinds in 2023.

Drax pointed out that its biomass, hydro and pumped storage generation assets collectively supplied up to 70% of the UK's renewable power during periods of peak demand when there was low wind and solar power. It is also “increasingly excited” about opportunities in the United States for the development of bioenergy with carbon capture and storage.

The North Yorkshire-based company increased its final dividend by 11.5% to 12.6p for payment on 19 May. The shares closed last week at 642.5p.

At Hays, new finance director James Hilton spent £20,000 on shares in the wake of the company posting half-year earnings near the top end of City expectations at £97 million.

The performance featured record fees in 19 countries including Germany, as well as in key strategic areas such as technology and engineering. Hays also allayed investor fears of a sharp downturn in hiring activity by reporting that 'return to work' rates in January and February had been encouraging.

The company added that it has started the process to find a successor to chief executive Alistair Cox, who during his 15 years in charge has turned Hays from a UK-focused business into one operating in 32 countries and with 21 specialisms.

The shares finished the week in line with Hilton’s purchase price of 120p, but analysts at UBS have a target of 160p. An unchanged half-year dividend of 0.95p a share is due to be paid on 11 April.

Show of support

Digital identity and fraud prevention firm GB Group (LSE:GBG) has received a show of support from its chairman after he spent £100,000 on shares in the wake of a profit warning last week.

The purchase by former Aveva CEO Richard Longdon came after AIM-listed GB said the North American market for identity services had been impacted by challenging conditions for cryptocurrency and internet economy customers.

Revenues for the year to 31 March will now be around £279 million based on underlying growth of about 4% in the second half, having forecast mid-single digits in November’s half-year results. Annual operating profit will be near to £60 million.

The Company of the Year in 2020’s AIM Awards surged in value during 2021 as it benefited from the pandemic’s e-commerce boom and unveiled a £547 million swoop for Los Angeles-based ID verification and fraud prevention business Acuant.

Shares topped 900p in autumn 2021 but closed last week at 319.8p, with Longdon’s purchase on Tuesday at 333p. The stock had been 647p in the first week of his tenure in September, driven by the disclosure of a takeover approach from Chicago-based private equity firm GTCR.

The parties could not agree terms, but Liberum believes last week’s update means GB is vulnerable to another approach, with GTCR free to return in early April.

The City broker downgraded its estimates for the 2023/24 financial year by between 11% and 13% and lowered its target price from 610p to 550p. It added: “We believe that fraud/ID is a good market and that GB Group’s competitive positioning is sound.”

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