Insider: Buying this ongoing recovery

A real test for Spirent

I was going to kick off with CRH this week. Non-executive director Lucinda Riches just spent over £85,000 on shares in the London-listed Irish building materials giant, despite a mighty rally to trade near record highs.

We've covered CRH before, and it's a successful constituent of our so-called consistent winter portfolio.

But there's something interesting going on at Spirent, the telecoms testing business which has struggled with an underperforming wireless division. The share price appears to have bottomed in 2016, with a clear recovery underway by late November.

Third-quarter results published at the beginning of November hardly moved the needle, chiefs telling shareholders to expect full-year results "broadly in line with previous expectations".

Spirent's Networks & Applications did well, but we were also warned about "customer consolidation and market challenges" - likely a reference to the Nokia/Alcatel merger - causing problems in Europe.

This month's full-year results didn't set off any triggers either, with a contraction in the device test market hitting wireless business, offsetting further growth at the networks operation.

However, between the two announcements, Spirent shares surged by 33% to their highest since September 2014.

There were no announcements, but City analysts had tipped the shares to between 90p and 100p, and management certainly talked up prospects this month without giving any precise guidance, saying:

"Strategic contract wins in our core business in 2016 for high-speed Ethernet test systems, virtualisation, cloud, and active test in operational networks for major service providers, combined with competitive wins with new security test solutions, give the board confidence to expect growth in 2017".

But Spirent's share price has kept rising post full-year results, surpassing all targets. The shares trade on almost 20 times earnings per share (EPS) estimates for 2018 and yield 3%. And management is backing the business to go further.

On 10 March, chief executive Eric Hutchinson bought 93,798 shares at 106p, and Elizabeth Walker, wife of chairman Alex, bought 75,000 at a fraction more.

Then, this week, Hutchinson bought another 182,713 shares at just under 109p, taking his stake in the business to over 2 million shares. On the same day, Dean Ritchie, partner of finance director Paula Bell, snapped up 72,000 at 108.5p.

That took the spending in recent weeks to over £456,000.

Janardan Menon, an analyst at broker Liberum, perhaps gave some clues as to optimism among insiders.

"We believe Spirent has largely turned the corner in terms of revenues and profitability with a positive outlook ahead on multiple fronts," he writes, also pointing to growth in the high speed ethernet testing market.

"Most importantly, Spirent's efforts in virtualisation and cloud, security, automotive and analytics seem to be starting to pay-off as visible in customer contracts and strong industry momentum in these areas. Many of these segments could become significant contributors to revenues and earnings in coming years, helping lift up overall profitability levels."

Howden Joinery dumps stake

Howden Joinery has been a regular in this column over the years. The kitchen supplier had an incredible five-year run, surging from less than 75p to over 500p by summer 2015.

But Rob Fenwick, at Howden since 2001 and now head of the firm's supply chain, appears to have decided that that was it.

Having accumulated over 1.4 million Howden shares through bonus schemes and various incentive plans, Fenwick sold 869,383 shares in June 2015 through his wife Elizabeth at an average price of 510.76p.

That deal, which netted the Fenwick's over £4.4 million, was not far off the top of the market, and the trend has been down since.

In May last year, Mr Fenwick pocketed another £526,000 from the sale of 104,433 shares at an around 504p each, following chief information officer Clive Cockburn and chief financial officer and deputy chief executive Mark Robson, who'd both sold a month earlier at between 462p and 475p.

Now, Fenwick has had another massive payday – more than £1.3 million - after wife Elizabeth offloaded 317,404 shares at an average price of 424p. The Fenwick's remaining stake of 223,628 shares is currently worth around £950,000.

Does Fenwick know something we don't, or is this just a seasonal trade?

Following full-year results published last month, Numis analyst Howard Seymour said he still thought the shares were worth 450p.

"Recent results confirm that Howden has more levers than most in terms of pricing, sales outperformance, cost control and inherent cash generation - all of which augur well in the coming year," he said.

"We also highlight here that we believe there is scope for progressive volume improvement which could give rise to valuation and share price uplift from here."

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.