Insider buys can be a sign that those with the most insight into a company view its shares as undervalued.
Yesterday we brought you 2 companies with multiple insider buys, and today we have rounded up 2 more for you.
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?
After studying insider buys for the month of November (via Sharp Investor), here are 2 more noteworthy ASX shares with multiple insider buys during the month.
Flight Centre Travel Group Ltd (ASX: FLT)
Two Flight Centre directors acquired an aggregate of 3,250 shares in the company in November. Flight Centre shares crashed in October after the company revealed underlying profit for the first half of FY20 would be below that of the prior corresponding period.
Shares in the travel group fell over 11% in a day from $47.20 to $41.67 on the revised FY20 outlook. The downgraded revenue expectations were attributed to increased costs, lower interest earnings, and political uncertainty such as Brexit slowing growth in geographies that have become key earnings contributors.
Reduced total transaction volumes in the shop network have impacted overall revenue margins. While in-store gross margins have stabilised, the traditional leisure business is still being right sized in terms of both people and shops. Flight Centre advised it has yet to see tangible benefits from interest rate cuts and tax refunds. Any such benefits will likely be seen later in FY20, providing consumer confidence returns ahead of peak booking periods.
In positive news, Flight Centre has seen online bookings double in the September quarter to $250 million, despite the challenging trading climate. Total transaction value also continued to increase solidly across the group during the quarter. Total transaction value was up 11.4% globally in 1Q20, well above Flight Centre's long term goal of 7% growth.
Corporate brands are now generating around 40% of Flight Centre's total transaction volumes. Corporate transaction volumes increased by a healthy 18% during the first quarter, with significant growth in the US, Europe, the Middle East and Africa. The corporate sector is on track to become a $10 billion business in FY20.
Citadel Group Ltd (ASX: CGL)
Three Citadel Group directors acquired an aggregate of 64,863 shares in the company in November. Shares in Citadel have been trending downwards over the last year before beginning to transition back up during November. Currently trading at $4.18, Citadel shares reached a low of $3.05 at the end of October from highs of over $8 in February.
Citadel Group is a software and technology company that specialises in secure enterprise information management. Citadel provides secure information to support real-time decisions in health, defence, national security and other industries.
Citadel's FY19 earnings and revenue were below expectations due to deferrals in project extensions and expected increases in customer spend which failed to materialise. Total revenue of $99.2 million in FY19 was reported, down 6.9% on FY18. Earnings before interest tax depreciation and amortisation (EBITDA) decreased 31.7% from $34.1 million to $23.3 million.
Citadel's share price dropped nearly 40% from $6.84 to $4.12 in May when the expected reduction in earnings was announced. Citadel is also in the process of transitioning its revenue mix from higher margin consulting and managed services to software as a service (SaaS) and related software services. The latter operate at a reduced margin in the short term before scaling in the medium term.
Net profit after tax (NPAT) dropped 43.8% to $10.9 million in FY19. Total dividends of 10.8 cents per share were paid, down 21.7% from 13.8 cents per share the previous year. Citadel ended the financial year with $14 million in cash and $12 million in debt.
In June, Citadel completed its acquisition of Noventus Pty Ltd, which provides software and systems services in the defence sector. Citadel acquired all of the share capital of Noventus Pty Ltd for $5.7 million in cash. The acquisition is expected to contribute $18 million in revenue and $2 million in EBITDA over the full year.
A number of contracts were won during FY19, which position the company for long term growth. These include the extension of a $25 million contract with Monash University and a 10-year $33 million contract with The Spotless Group to provide services to the Royal Adelaide Hospital.
Low double digit organic growth is anticipated with margins broadly consistent with FY19. As at 20 August, Citadel estimated it had a pipeline of $137 million in active sales opportunities, the majority in software or SaaS. All operating segments were forecasting growth in FY20.
Citadel plans to continue its strategic focus on diversifying revenue streams and growing recurring revenue in FY20. While organic growth remains the focus, SaaS acquisitions in the eHealth sector are progressing and Citadel expects to execute at least one bolt-on acquisition in the near term.
Foolish takeaway
ASX shares with multiple recent insider buys in November span the technology and travel sectors. 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.
