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 2 ASX shares with a number of insider buys in December.
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 may 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 December?
We have studied insider buys this month so far to bring you 2 ASX shares with multiple insider buys during December.
Bank of Queensland Limited (ASX: BOQ)
Four Bank of Queensland directors have acquired an aggregate of 150,000 shares in the company in December so far. Shares in Bank of Queensland are trading at 7-year lows, having last reached current levels in 2012.
BOQ shares declined over October and November after the bank announced its second dividend cut in a row in October. In FY19, dividends of 65 cents per share were declared, down from 79.6 cents in FY18. Full year cash earnings declined 14% to $320 million while statutory net profit after tax fell 11% to $298 million. Lower year on year cash earnings are predicted for FY20.
Disappointing full year results were followed by a capital raising in November consisting of a $250 million placement and $25 million share purchase plan. Under the placement 32.1 million new shares were issued at $7.78 per share. Funds from the capital raising were utilised to strengthen the bank's balance sheet, provide an increased buffer above APRA's Common Equity Tier 1 capital ratio benchmark, and create additional capacity for the bank to implement its strategic priorities.
Bank of Queensland is working in a challenging operating environment and has recognised the need to transform, warning FY20 will be a 'difficult' year. The lender is looking to invest in modernising technology infrastructure and digital platforms but recognises transformation will take time.
The bank is undertaking a strategic and productivity review, with results expected in February. From there it is a question of whether the regional lender can execute on its turnaround strategy.
On the plus side, the bank is currently yielding 8.70%, however analysts have warned further dividend cuts could be on the cards next year.
Dicker Data Ltd (ASX: DDR)
Four Dicker Data directors have together acquired over 55,000 shares in the company in December so far. Shares in Dicker Data started the year at $2.83 and reached highs of over $8 in September before falling in the interim, reaching $5.69 on 11 December.
Dicker Data is a value-added technology distributor that sells via a base of more than 5,000 resellers. Vendors distributed by Dick Data include Citrix, Intel, Lenovo, Microsoft, Cisco, and HP. The technology company is a strong distributor to the mid-market and small and medium businesses, with approximately 80% of revenue coming from these sources.
In the half year to 30 June, Dicker Data reported revenue growth of 18.7% with total revenue of $852 million. At a country level, Australian revenues grew by 17.8% while New Zealand revenues grew by 36.1%. The 10 new vendors added in FY18 and HY19 accounted for incremental revenue of $18.8 million for the half year. Existing vendors grew at 16.2% on the prior corresponding period. Net profit after tax increased 50.5% on the prior corresponding period.
Revenue increased 17.9% year-on-year (YoY) to $1,289.1 million for the 9 months to 30 September. Operating profit before tax was up 38.6% to $47.4 million for the same period from $34.2 million for the prior corresponding period. Full year operating profit before tax is expected to finalise at over $60 million for FY19.
Just under 80% of Dicker Data revenues in the 2019 half year were derived from hardware and virtual services with the remainder coming from software sales. Growth in the software division is being driven by increasing subscription fees and recurring product lines, with subscription software up 90% YoY to $58 million.
In November, Dicker Data entered into a distribution agreement with NASDAQ-listed Check Point to distribute Check Point products in the Australian market, effective immediately. Check Point provides software and hardware products for IT security including cloud security, endpoint security, and network security. The current available distribution market for Check Point in Australia is in excess of $100 million.
In recent years, Dicker Data has been targeting distribution agreements in software and high end enterprise products and those that address cloud computing environments. In 2019, the company launched Dicker Data Financial Solutions, a new business addressing the growing demand for device-as-a-service solutions.
Dicker Data has continued to introduce new vendors to reduce reliance on any one vendor. New vendors added in 2019 include Honeywell, Kaspersky, Opentext, and Nutanix. The contribution of the top 5 vendors has reduced from 90% in FY12 to 57% in FY18. Diversification of vendor concentration remains a key objective going forward.
Foolish takeaway
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 December span the banking and technology sectors.
