Insider (Director) Selling... A few worth commenting on
Ramsay Health Care has had a remarkable smack in the face recently, something that this stock is not used to. With this backdrop, I look at recent signals and Director selling for Ramsay in this note, as well as for Bellamys, Transurban, Mantra, and Computershare.
Ramsay reported on the 23rd February and on the day fell -3.3% (and was down as much as -8.8% intraday). Never a good sign.
But since then the stock has gone into “free fall” and has fallen 13 days out of 15 – from $71.74 to now $62.68 a drop of -$9.16 or -12.7% to now its lowest level in 11 months.
When they reported they came out with an “in line” result but some reasons it has come back could be:
(1) Over the 3 weeks the stock before reporting RHC had rallied +10% into its result,
(2) The stock trades on a forward PE of 26 times, so needs huge EPS growth to continue
(3) The Healthscope result the day saw HSO’s EBITDA was +6%- above market & on the day saw HSO up +5.8%. After a period in the sin bin, their prospects may be improving– which could mean we have been seeing some switching out of Ramsay that trades on 26x into the re-emerging HSO that trades on 21x (at the same time that RHC has fallen -12% Healthscope has no moved)
(4) CEO Chris Rex – who’s been at coy for 22 odd years announced at the result that he intended to retire this year BUT market didn’t like the fact that they have no replacement in mind yet..
(5) We have seen not 1 - but 2 - Directors selling & this is a ‘warning sign’..
- Christopher Paul Rex– CEO last week sold 400,000 shares at $68.10 – worth $27.2m (still holds 806,213). These were sold On-market trade for the purposes of Mr. Rex: a) undertaking the orderly diversification of his personal investment portfolio following the announcement of his intention to retire in 2017; and satisfying his tax liability arising from shares received as part of his remuneration
- Bruce Roger Soden CFO, Group Finance Director–sold 110,000 shares at $68.18 – worth $7.5m(still holds) 290,791 These were sold On-market trade to satisfy tax liability arising from shares received as part of his remuneration. Ok, Chris Rex is retiring so that’s a good reason to sell and he did say in January “I've got millions of things I would like to do before I die and I want to get cracking on them”.
On top of this we are also going to see soon the estate of the late founder Paul Ramsay sell around $500m in Ramsay stock– which is 32% of their $4.5 billion, to partly to fund a support the establishment of “the Ramsay Centre”
History & Quant Studies have told me what to look out for when Directors Buy & Sell
Over the years I have looked at director (or what we also call "Insiders" ) selling and director buying
Plus - there have been “Quant” studies done on this at the brokers I have worked at.
The results are that....
Director buying is a small positive.
Director selling (if reasons are ok ie due to building a house or funding a tax liability) a small negative - but given most need to sell stock to fund their lifestyles it isn't a major worry most times...
BUT - When - over the years - we have seen 2 or more Directors in the same company sell within a close time period – it’s a “red flag event” -it has been a huge negative for the share price as its a sign to many that if they are selling they may think the stock is at an "expensive level" or worse that maybe things are not going so well at that company…
Most times this has seen the stock under-performs for some time after.
Even if the reasons are legitimate– the market is always cautious when more than 1 director sells stock.
In this case of Ramsay Healthcare - we are seeing the CEO leaving the company and he wants cash - fair enough - so maybe the market will look through that?
Still, for now, I can’t see Ramsay outperforming in the next few months at least.
The last time we saw 2 Directors selling (and this time we really should have taken notice) was...
This was last year on the 28th August 2016
1. Bellamy’s Managing Director and CEO Laura McBain sold 165,000 shares at $14.54
2. Chair Rob Woolley has sold 200,000 shares at $14.60.
The reasons given were “Laura and Rob will be investing in personal assets and supporting private family investments.” Laura continues to hold 1,000,376 shares, while Rob continues to hold 252,277 shares in the Company.
As we know a lot has gone down with Bellamy’s, and the stock is now trading around $3.86.
That is probably one of the more extreme examples (actually the most extreme I've seen) of what can happen when we see a number of Directors selling.
So in Ramsay’s case the stock has come back a long way– it’s a premium company that has one problem in this market – it’s an expensive stock with a high PE , in a market that is still de rating high PE stocks.
So the winners here have been the Healthscope holders whose stock price has remained steady while Ramsay has been hammered -12% ..
Some other Insider selling recently…
This stock has surged from $8.60 in August last year to $10.30 by November 2016 & now up to its highest level ever & around $14.00– the market loves it & maybe this is a sign that we should now be wary of in the short term –we have seen not 1 but 2 Directors selling...
1. Christopher Morris Non-executive Director sold 2m shares ($2.7m)
2. Penelope Madagan Non-executive Director sold 183,157 shares
The stock has been under a lot of pressure and has fallen. Bob East, the Chief Executive Officer - on Friday a notice went out that he sold 250,000 shares at $2.81.
This is an interesting in that the stock has come back from $4.50 a year ago, to $3.50 in October to $3.00 on the 15th Feb.
On the 9th March the stock hit its lowest level in 2 years at $2.64 & has bounced a bit since then.
Look this will not be well received by the market, when the stock is at 2 year lows & some brokers are saying its cheap and a buy here & now you have the CEO selling stock & it's just not a great look & no matter what the reasons are.
Back on 7th March Transurban CEO Louis Charlton sold 350,000 shares at $11.02 it was an on-market trade “to fund impending tax obligations.
Given TCL was trading at $9.60back in November & has rallied, the CEO has simply waited & given the stock looks toppy around $11.00 (to me anyway) this was a good level to sell at.
Especially if we see part 2 of the bond proxy selloff later on this year (as interest rates continue to rise globally).
I’m with the CEO of this one... I’d be a SELLER of Transurban here around $11.00.
Extract from The Coppo Report. More detail about the report is available here: (VIEW LINK)
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Richard authors “The Coppo Report”, a highly regarded market newsletter. He has over 30 years’ experience in financial markets, beginning his career at Ord Minnett where he worked for 15 years, before moving to Goldman Sachs.