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 an 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 November?
We have studied insider buys for the month of November to bring you 2 ASX shares with multiple insider buys during the month.
Prospa Group Ltd (ASX: PGL)
Five Prospa directors acquired an aggregate of 299,913 shares in the company in November. The Prospa share price fell sharply last month when prospectus forecasts were downgraded. Shares in the company fell 27.4% in a day, from $3.86 to $2.80, following the update to prospectus forecasts.
Prospa is an online lender offering small business loans of $5,000 to $300,000 with terms between 3 and 24 months. The company IPOd in June at an offer price of $3.78 and immediately lifted 19% to $4.50. Shares reached highs of $4.96 in September before their recent sharp decline.
According to updated forecasts, CY19 revenue is anticipated to be $12.6 million or 8% below the prospectus forecast at $143.8 million. Calendar year originations are expected to be 2.7% higher than the prospectus forecast, however this has not translated to increased revenue. The variation is due to increased use of Prospa’s service by higher credit grade customers. These customers tend to pay lower rates over longer loan terms.
In 1H20 Prospa is forecasting revenue of $75 million, down from the $88 million prospectus forecast. Increased use of products by premium customers mean revenue is recognised over a longer time horizon. Earnings before interest, tax, depreciation and amortisation (EBITDA) is predicted to be $4 million in 1H20, down from $11.3 million in the prospectus forecast.
In the first 4 months of FY20, Prospa originated $181.2 million in loans, a 40% increase on the same period in 2018. Total originations for FY20 are expected to be in the range of $626 million to $640 million, an increase of 25% to 28% on FY19, with revenue of at least $150 million. Prospa is currently trading at $1.94.
PSC Insurance Group Ltd (ASX: PSI)
Four PSC Insurance directors acquired 1,055,917 shares in the company in November. PSC Insurance Group is a diversified insurance services group operating in Australia, New Zealand, and the United Kingdom. The Group is comprised of a portfolio of businesses covering insurance broking and underwriting.
PSC Insurance has been on an acquisition spree of late, snapping up three businesses in 2019. This follows a number of strategic investments and acquisitions in 2018.
In FY19, PSC Insurance reported strong operational revenue growth, with revenue up 19% to $117.4 million. Operational EBITDA was up 19% to $41.7 million. Underlying earnings per share were 11.3 cents up from 10.2 cents in FY18. A dividend of 8.3 cents per share was paid in FY19 up from 7.2 cents the prior year.
In 2019, PSC Insurance acquired the broking business of Griffiths Goodall Insurance Brokers and all share capital of Paragon International Holdings Limited. These 2 acquisitions are expected to contribute $10.5million in incremental EBITDA in FY20. Underlying EBITDA of $57.8 million is expected for the Group in FY20.
Griffiths Goodall Insurance Brokers is a well-diversified Shepparton based insurance broker with more than 30 staff specialising in commercial, industrial, transport, logistics, pleasurecraft, agri-risk, and personal insurance. In July PSC purchased the insurance broking portfolio and other key assets of the business for $48 million in cash and scrip.
Paragon International Holdings Limited is a leading independent Lloyd’s and London market broker. PSC entered into an agreement to acquire 100% of the share capital in Paragon for ~AU$75 million in late July. Paragon has more than 90 staff specialising in professional liability, directors and officers, cyber, casualty, healthcare, and mergers & acquisitions insurance.
Paragon provides wholesale brokerage services to clients in the US and both wholesale and direct brokerage services to clients in the UK, with more than 60% of revenue generated from the US wholesale market. Post-completion, Paragon will continue to operate as an autonomous business unit of PSC Insurance.
PSC Insurance conducted a capital raising via institutional share placement July. The placement raised $35 million through the issue of 13,461,358 shares. Funds were used along with existing cash resources to pay for the acquisition of Paragon.
In November, PSC Insurance acquired Carroll Insurance Group (CIG), a direct and wholesale broking business operating in the Lloyd’s and London markets, for ~£6.3 million. Incremental revenue attributable to the transaction is expected to be ~£2 million per annum. The acquisition was funded from existing cash reserves and is highly complementary to PSC Insurance’s existing brokerage business in London.
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 in November span the financial and insurance 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.
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