Director 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 multiple recent director buys.
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.
Which ASX shares had multiple director buys last month?
Here’s a closer look at 3 ASX shares that all had multiple insider buys during February.
Graincorp Ltd (ASX: GNC)
Three Graincorp directors acquired an aggregate of 31,038 shares in the company last week. Graincorp has operations in grains and oilseeds in Australia, Canada, China, Germany, India, New Zealand and Ukraine. Graincorp stores, transports, and trades grain, providing a link between local growers and national and international markets. The company also collects and processes canola oil for use in cooking, food products, and animal feed.
Shares in Graincorp have fallen more than 12% from a peak of nearly $9 in mid February and are currently trading at $7.77. Graincorp has been a victim of the continuing drought in Australia, which has impacted on grain production. In FY19, the company saw a substantial decline in earnings due to low grain receivals, weaker utilisation of rail contracts, and lower export volumes.
Underlying earnings before interest tax depreciation and amortisation (EBITDA) were $69 million in FY19, well down from $269 million in FY18. Graincorp reported an $82 million loss for the year, down from a $71 million profit the prior year. As a result, it cut its dividends to zero from 16 cents per share in FY18.
On 19 February, Graincorp announced another below average winter crop in 2019–20, although it received a welcome boost from meaningful rainfall across the eastern seaboard during February. Minimal grain exports are expected again year as the domestic market secures supply.
Praemium Ltd (ASX: PPS)
Three Praemium directors acquired an aggregate of 240,700 shares in the company last week. Praemium provides a managed account management platform used by wealth advisors in Australia, the UK, and Asia. Shares in Praemium have fallen from a high of 68 cents in October last year and are currently trading at 36 cents.
Praemium announced its half year results on 10 February, recording a record half year profit. Underlying EBITDA of $7 million was reported, a 37% increase on 1HFY19. Revenue and other income increased 5% on the prior corresponding period to $24.2 million. Expenses were up to $13.3 million from $12 million in 1HFY19. Net profit after tax (NPAT) soared 122% to $1.4 million.
Funds under management surpassed $20 billion for the first time during the half, increasing by 145%. Platform funds under management increased 30% to $10.2 billion, while vulnerability management as a service (VMAAS) grew 25 fold to $10.1 billion. Record platform gross inflows of $1.9 billion were reported.
The Australian business continued to perform well, with revenues increasing by 13%. The international business remains loss-making, with the UK recording an EBITDA loss of $0.6 million and Asia an EBITDA loss of $0.4 million. The international business did see gross inflows increase 81% over the previous year, with revenue in Asia increasing 24% and revenues in the U.K. up by 7%.
Smartgroup Corporation Ltd (ASX: SIQ)
Two Smartgroup directors bought an aggregate of 7,000 shares in the company last week. Smartgroup is a specialist provider of a range of employee management services including salary packaging, novated leasing, fleet management, payroll administration, employee share plan administration and workforce optimisation.
Smartgroup shares are currently trading at $6.34 having fallen from a high of over $12 in October. Shares fell sharply in December when Smartgroup announced its insurance underwriting partner was making changes to the terms of insurance products sold by Smartgroup, taking effect 1 July 2020. The financial impact of these changes is expected to result in a reduction in Smartgroup’s after-tax profits of approximately $4 million.
Smartgroup released its full year results for 2019 in February, reporting a modest increase in profits. Revenue for the year was $249.8 million, up 4% from $241.8 million in 2018. Smartgroup reported organic growth of ~24,700 salary packages and ~3,500 novated leases.
The group reported decent performance in the face of industry headwinds, with total novated leasing volumes up 4% in the context of Australian private new vehicle sales declining 8% during 2019. Smartgroup reported that 200 clients used two or more service offerings, growth of 22% over the last 12 months.
EBITDA increased 3% to $118.2 million from $115 million. Net profit after tax and amortisation (NPATA) increased 4% to $81 million. A fully franked final dividend of 21.5 cents per share was declared, up marginally from 21 cents per share in 2018. Full year franked ordinary dividends were 43 cents per share, up 4% from 2018, plus a special 20 cent dividend was paid.
Smartgroup was conservatively geared with net corporate debt of $21 million at 31 December, giving a net corporate debt to EBITDA ratio of 0.2x. Cash of $39.6 million was held at the end of the year, up slightly from $39.2 million at the end of 2018.
While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value.
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Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Praemium Limited. The Motley Fool Australia has recommended Praemium Limited. 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.