First, let us look at the law on the subject. No one in possession of unpublished and price-sensitive information can deal in a share. Knowledge of an impending takeover bid would obviously therefore prohibit dealing. There are also closed periods two months before both the interim and final results and purchases and sales must be announced within five days of dealing.
I am never unduly influenced by odd-lot small sales or purchases. To be impressed, I have to feel that the shares that were sold or purchased are of some significance to the director in question.
The founder or large shareholder placing, say, 200,000 shares out of a total of 5 million would not concern me at all - he has to live. If, however, he sold half his shareholding, that would unnerve me. The financial director selling 10,000 shares out of a total of 15,000 would also be an obvious cause for concern. In contrast, several executive directors buying a total of some pounds 200,000 worth of shares might be a possible cause for celebration.
Browsing over my April return of directors' dealings, I noticed that the chairman of Admiral sold more than 1 million shares, leaving him with a holding of 2 million, and the managing director sold 100,625, to leave a total of 420,000. The company's future outlook might be fine, but sales of pounds 4.6m worth of shares are enough to put me off. In contrast, two directors of Takare sold 200,000 shares each, but still own a total of more than 22 million. The proceeds are being used for tax liabilities and they have no intention of selling any more. No cause for alarm.
I noticed that David Montgomery, of Mirror Group Newspapers, made a well-judged purchase of 50,000 shares at 108p soon after the results were announced. This was obviously an encouraging sign of confidence, but the shares are already 143p so the gilt may now be off the gingerbread.
I was going to look closer at the fundamentals of Erskine House when I saw, in early April, that five directors bought a total of 220,000 shares for prices ranging from 30.5p to 37p. However, I was pre-empted when Alco Standard made an unexpected bid of 90p in May.
Two transactions that also caught my eye this month were the purchase of 100,000 shares each by Jack Wilson, the chief executive, and Statis Papoutes, the managing director, of London Forfaiting. This increased their total shareholdings to just under 12 million shares between them. The near pounds 400,000 value of the two transactions was enough to make me take a closer look. London Forfaiting is a provider of export finance in three big trading blocks: Europe, the Americas and the Far East. There is not much space left for the fundamentals, so here they are in rapid fire - present price 200p, market capitalisation just over pounds 200m, 1992 eps 13.75p. The Estimate Directory brokers' consensus forecast for 1993 eps is 15.2p, but a very recent circular by Smith New Court forecasts 16.4p. Smith also forecasts growth of 17 per cent for 1994 to give eps of 19.2p. On its forecast, the prospective p/e ratio for 1993 is only 12.2.
However, there may be growing problems with export finance in recession-hit markets like Europe, which leaves me with more doubts than the directors.
The author is an active investor who may hold any shares he recommends in this column. Shares can go down as well as up. He has agreed not to deal in a share within six weeks before and after any mention in this column.