Insider buys can be a sign that those with the most insight into a company view its shares as undervalued. Here we take a look at ASX shares with a number of insider buys over the past month.
What is insider buying?
Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.
Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging a Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.
Who was buying what on the ASX in October?
We have studied insider buys for the month of October to bring you 3 ASX shares with multiple insider buys during the month.
Cleanaway Waste Management Limited (ASX: CWY)
Cleanaway Waste Management reported 4 trades, with insiders buying more than 94,000 shares in aggregate for average prices ranging from $1.759 to $1.845.
Shares in the waste management business fell 13% from $2.13 on 24 October to $1.85 on 25 October on warnings of potentially softer first half earnings in FY20. Insiders subsequently snapped the shares up on 28 and 29 October.
Earnings in the first half of FY20 are expected to be in line with earnings in the first half of FY19 due to lower economic activity, softer commodity prices, and a reduction in Queensland volumes.
Earnings in the second half of FY20, however, are expected to be stronger than in the second half of FY19, thanks to cost reductions already implemented and pricing initiatives in train.
On 9 October, Cleanaway announced the acquisition of the assets of SKM Recycling Group for $66 million, with the transaction completing on 1 November. Pursuant to the deal, Cleanaway acquired 5 properties with a market value of approximately $50 million, plus SKM’s plant and equipment. Cleanaway shares rose 6% from $1.92 to $2.04 when the deal was announced.
Cleanaway reported decent improvements in results in the FY19 financial year. Net profit after tax was up 18.9% for the year to $123.1 million. Earnings per share increased 30% to 6.9 cents. Dividends increased 42% to 3.55 cents per share up from 2.5 cents per share.
Net revenue for the group increased by 34.8% to $2.1 billion over the year, with earnings before interest and tax (EBIT) up 44.7% to $240.8 million. Cleanaway is currently trading on a PE ratio of 30.62 and a dividend yield of 1.93%.
Reject Shop Ltd (ASX: TRS)
The Reject Shop reported 3 insider trades in late October for an aggregate of over 65,600 shares. Shares in the discount retailer have risen sharply since reaching a low of $1.85 in September, up 47.5% to $2.72 currently. Insiders bought the shares for average prices between $2.32 and $2.36.
FY19 was an extremely challenging year for the Reject Shop, with comparable store sales down 2.5%. Gross margin declined 1.1% to sales over the year due to poor buying decisions and an increase in shrinkage. Earnings before interest tax depreciation and amortisation (EBITDA) were $18.2 million, a decrease of 57.6% on the previous year.
A non-cash pre-tax impairment charge of $21.9 million was announced, which contributed to a full year loss of $16.9 million. No full year dividend was paid due to the poor performance of the business, although the board intends to return to paying dividends as soon as profitability allows.
The Reject Shop has been operating under acting CEO Dani Aquilina since mid year following the departure of former CEO Ross Sudano. A replacement CEO is expected to be announced in the next 4–6 weeks.
FY20 has seen some improvement in the Reject Shop’s fortunes with comparable store sales up 0.3% in the first 15 weeks. A more aggressive approach to occupancy costs has been flagged, with the company having ‘no hesitation’ to exit leases where occupancy costs do not meet rent-to-sales criteria. This may result in store closures or relocations to more affordable premises.
Christmas is a critical time for the Reject Shop. The company’s strategy is focused on delivering a refreshed range to appeal to a younger demographic and meet the needs of Australian families. The aim is to expand the core customer reach to attract new customers and increase the number of items customers are buying.
Kyckr Ltd (ASX: KYK)
Kyckr reported 2 on-market insider trades for an aggregate total of 197,000 shares. Shares in the regulatory technology company have crept downwards over October from a high of 32 cents in September to 16 cents currently. Insiders made purchases at the start and middle of the month.
Kyckr technology helps organisations meet regulatory, Know Your Client (KYC) and compliance requirements with its global business registry database. The total market for KYC solutions is expected to reach $16.3 billion in 2023.
Kyckr shares spiked up sharply in September, gaining 190% to go from 11 cents on 18 September to 32 cents on 23 September. The jump followed the announcement of a cornerstone investment by WiseTech Global Ltd (ASX: WTC) chief executive Richard White and a reseller agreement with illion. Richard White bought into Kyckr’s $5.2 million September placement, acquiring a 19.6% stake in the company.
Under the reseller agreement, illion will have the right to resell Kyckr technology to customers across Australia and New Zealand. Illion currently delivers data and analytics to major and mid-tier banks. Kyckr’s API will be integrated into illion’s Decision Engine API, adding enhanced functionality from data cleansing, remediation, and ongoing customer monitoring from over 200 global registries.
Kyckr reported increased revenue of 25% for FY19, with online sales revenue growing 45%. A net loss of $6,125,773 was reported for the period.
While a single insider buy may not be telling, several can provide a good indication that those best placed to know consider shares good value. ASX shares with multiple recent insider buys span the industrials, retail, and technology sectors.
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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.