Senior directors of London Stock Exchange-listed companies have been demonstrating their faith in the underlying fundamentals of their companies, and ability to bounce back strongly after the Covid-19 crisis, by buying up shares themselves.
With stock markets down over 20% over the past few weeks, many investors are panicking. But directors appear to be using the cheaper share prices as both an opportunity to snag themselves a bargain and reinforce the message to outside investors that they are confident in the business’s prospects when things start to return to normal.
London Stock Exchange (LSE) data shows a leap in the ratio of the discretionary share purchases made by the directors and management of some of the UK’s biggest companies. In-house share buying across the FTSE All-Share index is well above the 5-year average. Managers and directors at companies in different sectors including consumer goods, telecoms, banks and leisure activities groups have all been seen to be buying shares in the own companies, suggesting they are “looking through” the current pandemic lockdown. Some of the sectors directors are buying shares in are among the worst hit.
Since the beginning of March, the FTSE 100 large-cap benchmark index has lost 21.12%. The mid-cap FTSE 250 is down just shy of 30%. The current director buying-to-selling ratio is higher than in the weeks after the Brexit referendum result. However, it is still below the high ratio of buying seen in winter 2018, when the UK was tangled up in complicated Brexit negotiations and talks with the EU.
Examples of major share investments by company directors include Talktalk founder and executive chairman Sir Charles Dunstone, who earlier this month purchased £1.4 million of stock in the company. Vodafone CFO Margherita Della Valle stumped up a more modest £99,300 for shares in the company – another telecom.
Telecoms companies seem like an obvious beneficiary of the current situation. Banks less so, after the benchmark interest rate was last week slashed to an historic low 0.1% by the Bank of England. That hasn’t put off a number of Barclays directors snapping up shares almost £1 million this month. Chairman Nigel Higgins alone invested £346,175 of his own cash in the bank’s shares. With the government launching a huge economic stimulus plan, and making sure banks will be supplied with the capital to lend to businesses, there is clearly belief that will help compensate for rock bottom interest rates being earned.
Two directors at consumer goods company Reckitt Benckiser, the COO of its health unit and COO of its hygiene division, bought £558,000 and £480,000 of company shares respectively. The chairman of security company G4S bought over a quarter of a million pounds worth of stock in the company and there were also numerous smaller director investments and many other London-listed companies.
Quoted by The Times, Liberum research analysts Andrew Mr Coury explains that as little as six weeks ago there was very little internal share buying activity by directors of public UK companies. That, believes Mr Coudry, indicates directors are now hoping to take advantage of depressed prices. They could also be hoping to prop up share prices to an extent by demonstrating their own confidence in their companies. He commented?
“We believe this to be a vote of confidence that the effects of Covid-19 on their companies will be short-lived, and current prices offer an attractive entry point. The adage is buy low and sell high. This is the time to buy low.”
A similar pattern can be seen in the USA, where executives at Wall Street-listed companies valued at $1 billion or more made a total of 1305 stock investments this month compared to 113 over the same period last year.