Interactive Investor

Insider: Last minute deals and Watchstone action

23rd December 2015 11:29

Lee Wild from interactive investor

Hunting for bargains

As the clock ticks down to Christmas, company directors seem in a rush to spend big money stakebuilding. There's been a spate of share deals worth £40-£70,000 apiece in the past few days, including buying at Telford Homes, N Brown, Imagination Technologies and Laird.

Oilfield services struggler Hunting has more than halved in value since June, hammered by huge cuts in oil industry capital expenditure. But non-executive director John Hofmeister sees value here.

American Hofmeister, a former Shell executive, has just paid over £43,000 for 15,000 Hunting shares at 288.5p each. These are prices not seen in 10 years, but the sell-off is overdone, according to top analysts.

We recently reported how Goldman Sachs thinks Hunting "can be cash generative even in another down year for activity in 2016, leaving it in a robust position to take advantage of the sharp recovery in activity we expect in 2017". It says the shares could be worth as much as 560p.

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Among the rest, the wife of Telford Homes non-executive director Frank Nelson spent almost £50,000 at 382.5p a share. Angela Spindler, who runs home shopping firm N Brown, has just snapped up 23,782 shares at 292.8p, Imagination Technologies chairman Bert Nordberg has increased his stake by £33,000 at 132p, and Laird chairman Dr Martin Read by £50,000 at nearly 348p.

Watchstone

Newly-named Watchstone, the old Quindell, remains an incredibly volatile and widely-followed share. It's recently received court permission to hand back 90p a share to shareholders from the sale this year of its core legal services business to Slater & Gordon. Cheques will be in the post on New Year's Eve.

As the shares went ex-entitlement to the payout, a share consolidation meant shareholders received one new share in exchange for every 10 held previously.

After coming back from a temporary suspension since last Wednesday, Watchstone shares began trading again on Monday morning. Within 11½ trading hours they had surged by 161% to 300p!

No doubt fortunes were made by some lucky private investors, but the price has since fallen by more than 20% to 236p. According to reports, Peel Hunt thinks the shares are worth 178p. Caveat emptor.

Of course, Watchstone is nothing like the old Quindell. There are legacy issues to deal with, however. A Serious Fraud Office (SFO) investigation into past accounting practices is ongoing, and a law firm acting for 342 disgruntled shareholders threatens a claim against the company worth £9.4 million. A further claim of £9 million is possible.

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But Watchstone says it has "sufficient assets" to pay any fine in the event of a successful prosecution by the SFO. It should have enough cash to cover any legal claim, too, it adds:

"Following the return of capital, in addition to its operating businesses, the company expects to retain approximately £90 million in cash. The group has a further £55 million held in escrow accounts relating to the disposal and the company retains rights to contingent consideration estimated to have a current value of approximately £39.6 million."

What we don't know is what Watchstone will do next. The collection of businesses still on the books - among them Himex, QSI, Ingenie and QETS - is largely focused on processing data from vehicle black boxes for insurance companies.

New chief executive Indro Mukerjee will publish a strategic review in the new year. In the meantime, he's just bought 50,550 Watchstone shares at 196p each. So has finance director Mark Williams, while new non-executive director Lord Howard, the former Home Secretary and leader of the Conservative party, invested nearly £25,000 in Watchstone at the same price.

Legacy risks remain, and the businesses left are hardly dynamic. But the assembled board certainly packs a punch and investors clearly remain happy to back them. Mukerjee's review will be the next major catalyst. An end to the high level of speculation and uncertainty cannot come soon enough.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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