The recent market maelstrom has seen significant falls in the share prices of many ASX technology shares. But has the sell off been overdone?
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 3 ASX technology 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 have had director buys?
We have studied recent insider buys to bring you three ASX technology shares with multiple recent insider buys.
Dicker Data Limited (ASX: DDR)
Four Dicker Data directors have acquired an aggregate of more than 190,000 shares in the company over the last fortnight or so. Dicker Data is a technology distributor that sells via a base of more than 5000 resellers. It is a strong distributor to the mid-market, and small and medium businesses, with approximately 80% of revenue coming from these sources.
Dick Data shares shares have fallen 30% from their February high of $7.26 and are now trading at $5.27, up from a low of $4.10 on Monday. Dicker Data has not released any update regarding the coronavirus pandemic, but exceeded guidance in its FY19 results, which were released at the end of February.
Strong revenue growth was reported with total revenue from ordinary activities of $1,761.3 million, up 17.9%. Recurring software revenue increased 47.9% to $366.5 million. Existing vendors grew 16.9% on the prior corresponding period as existing vendor relationships were leveraged to gain access to new product lines or increased share.
Net profit after tax (NPAT) increased 67.3% on the prior corresponding period to $54.3 million and a dividend of 13 cents was declared. Total dividends of 33 cents were paid for FY19, up 63.4% from FY18.
Dicker Data’s strong growth rates may be tested in the current economic climate. With many small and medium businesses coming under pressure and even predicted to close, this could have an impact on the company’s client base.
Link Administration Holdings Ltd (ASX: LNK)
Three Link Administration directors have bought an aggregate of 335,385 shares in the company this month. Link Administration provides administration services to superannuation funds and corporate markets as well as data management analytics, digital communication, and stakeholder education and advice.
Shares in Link Administration have fallen nearly 50% from their February highs of $6.50 and are currently trading at $3.30. Link Administration withdrew its guidance for FY20 earlier this week, citing challenges in forecasting some revenue streams.
Link Administration emphasised that the majority of its contracted revenue is with large financial institutions derived from non-discretionary services. Nonetheless additional initiatives have been taken to reduce costs and support operating cash flow recognising increased activities in corporate markets.
Link Managing Director John McMurtrie said, “with over 80% of Link Group revenues recurring in nature, the defensive qualities of Link Group’s earnings profile will support operating cash flow during this period of volatility.”
He acknowledged, however, that some segments of the business would be negatively impacted by market volatility and reduced margin income on float balances.
Link Administration said that it was appropriately capitalised and had adequate undrawn and committed credit facilities to support liquidity. At 29 February Link Group had $126 million in cash and net debt of $773 million.
Seek Limited (ASX: SEK)
Three Seek directors have acquired an aggregate of over 33,000 shares in the company in March. Shares in Seek have fallen from a February high of $23.64 reaching a low of $11.95 on Monday before bouncing back, and are currently trading at $14.50.
Seek may see earnings come under pressure as the economic impacts of the coronavirus take hold. With businesses shutting up shop and laying off staff, the jobless rate is predicted by some to increase to as much as 11%.
Seek runs a host of websites advertising employment opportunities. But with businesses scaling down or shutting up shop altogether, there are likely to be fewer positions to fill. This will translate into fewer advertisements on Seek’s sites.
The company reported resilient revenue in the first half despite then subdued macroeconomic conditions. Revenue rose 16% to $875.5 million. Earnings before interest tax depreciation and amortisation rose 4% to $247.4 million as Seek prioritised investment to unlock future growth opportunities. In the current economic environment those growth opportunities may be constrained.
NPAT declined 24% to $75.6 million as a result of investments in operating business and losses in early stage ventures. Seek reported in late February that impacts from coronavirus had not been material outside of China and Hong Kong. As a result, Seek said it did not expect any material change to its FY20 outlook.
The company did flag that revenue could be lower by $110–$120 million for revenue and $25 million for NPAT based on a number of assumptions regarding its business in Zhaopin (China). Seek, however, was confident that over time it would experience stronger economic conditions in its key markets and has an aspirational revenue target of $5 billion in FY25.
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 Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia has recommended Link Administration Holdings Ltd and SEEK 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.
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