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All posts for the month April, 2017

What a difference a year makes….well 10 months !

We revealed in our post-Brexit blog back in June of last year how senior directors(‘insiders‘) of the largest UK companies were using the market sell off as an opportunity to invest their personal wealth back into their own businesses by buying company stock. At the time, it was a telling signal that they believed their own companies were mispriced and undervalued, whilst simultaneously boosting market confidence about the limited impact of Brexit on UK PLC.
Retrospectively it seems these directors were vindicated in their assessment. The pullback was temporary and the market has since rallied a further 14% from preBrexit levels and some have made a killing.

So lets roll forward 10 months…..

Today’s insider analysis now paints a very different picture, well, certainly for the UK companies most exposed to fluctuations in sterling, the UK 250 Mid-Caps.
The Net Discretionary Transaction Value(Sells vs Buys) of insider transactions for this segment of the market over the last three months has seen its highest selling intensity since the same three month period in 2007. A total of £173m worth of company stock was sold from February to April, over four times more than was bought by directors.

Our analysis shows there has been two real notable periods of consistent, high intensity insider selling in UK Mid-Caps both coinciding with negative event catalysts; in 2007 ahead of the impending Credit Crisis and in similarly in 2010 at the onset of the Greek Debt crisis.
Are we to assume this increased vigour to sell company stock represents an about turn by the directors of UK PLC and their estimation of the company’s fortunes in a post-Brexit world ? Or now that they have had time to properly assess the impact of Brexit on their businesses are they unknowingly signalling to the market about an expected material slowdown in business conditions ? Time will tell…

We also noted in our previous Brexit blog that Andrew Pidgley the Executive Chairman at UK property firm Berkeley Group had transacted the single largest individual buy trade in the immediate aftermath of the vote,  purchasing c£1m worth of stock. Those who use OTAS to monitor his transaction history will have seen that he has recently sold over £31m worth of stock(around 15% of his total holding,) his largest single transaction ever. Furthermore, they will have identified his previous selling history as particularly knowledgeable. 

With the triggering of Article 50 now discounted by the market, the focus turns to the next two years of negotiations and it will be this that has the greatest influence on UK companies. However, if the market is looking a for a proxy on the confidence of UK businesses it only needs to looks at how some of their leaders are positioning themselves now, especially in the sectors which are potentially most exposed.

Many traders believe that trading around earnings announcements doesn’t provide an attractive risk/reward proposition, probably due in part to the information asymmetry that exists and the fact they are generally not well informed. They just dont have that ‘edge.’

Our clients do.

OTAS’ unique ability to bring multiple factor analysis and key risk identifiers together in one place gives our clients the ability to actively manage portfolios and stock positions by minimizing surprise risk over earnings season.

Clients with access to our Estimize earnings estimates have the ability to compare current consensus EPS data whilst additionally combining the power of OTAS’ Earnings Positioning screen and other Core multi-asset analytics to identify which of their investments have potentially elevated positive/negative price risk heading into numbers.

Let look at a couple of current examples with upcoming earnings:

Possible downside risks:
Wyndham Worldwide – Earning Release Wed 26th April

  • Stock making new 52-week highs. Technical RSI of 83.5, currently the third most overbought stock in S&P500.
  • Analyst EPS estimates remained unchanged over last month versus share price +9%.
  • Shares are now trading at the median analyst price target of $91(consensus ‘Buy’)
  • Estimize consensus expects only a 2 cent(or 2%) Q1 beat vs Wall St.
  • Short Interest in the last week has increased by a significant 18% to 9.11% of free float.
  • Shares are priced to heavily beat, market EPS expectations are inline. Negative Hedge Fund positioning suggests possible ‘Travel & Arrive‘ scenario.

Possible upside risks:
Tractor Supply – Earning Release Wed 26th April

  • Positive price reaction following fall in shares after negative pre-announcement in early April.
  • Earnings estimate downgrades now reflected in share price. Shares trading at 16% discount to median analyst price target(consensus ‘Buy’)
  • Company valuation and 12m yield looking potentially attractive
  • Estimize forecast Q1 EPS of 0.50 cents, still 6.4% higher than Wall St average
  • Significant 1 week fall in short interest, -37% to 2.4% of free float.
  • Pre-announced downgrades now ‘in the price,‘ strong fundamentals, heavy short covering, general consensus still expect a Q1 beat.

For more information on any of our risk screening tools or trading analytics, make sure you visit our stand at TradeTech(Stand 14) over the next few days where we’d be happy to show you more.