"Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."
This quote from famous investor Peter Lynch came to mind after Indian sandalwood grower TFS Corporation Limited (ASX: TFC) released four change of directors' interest notices today.
Last week several TFS insiders bought shares including CEO Frank Wilson ($634,000), Chairman Dalton Gooding ($150,000), and non-executive directors Michael Kay ($250,000) and Gillian Franklin ($300,000).
TFS is the world's largest owner and manager of rare Indian sandalwood trees from which it produces high-quality wood products and pharmaceutical grade Indian sandalwood oil.
They currently have 10,500 hectares of sandalwood plantations under management and TFS owns 3,500 hectares. The trees require 15 years to mature and the first plantations started in 2000 were harvested last year.
From 2016 onwards TFS will own a larger percentage of the annual harvest which should provide a healthy boost to the company's profit and dividends: this could be why the directors think it's such a great time to buy additional shares.
TFS surprised investors in June 2015 when it announced its acquisition of US pharmaceutical partners ViroXis Corporation and Santalis Pharmaceuticals for a minimum price of US$23.4 million. However, if all future milestones are achieved the maximum amount payable could be up to US$221.5 million!
The business is fantastic at growing and managing sandalwood plantations, but its determination to go further – from plantations through to pharmaceutical development and sales – exposes the business to additional risk. This venture into pharmaceuticals could prove to be a case of "diworsification".
Sandalwood plantation sales continue to receive strong support from institutional investors, while TFS continues to invest more each year into company-owned plantations.
TFS Corporation has a bright future in front of it and is worthy of further research; however, I would have preferred that the company stuck to what it does best – growing trees.
