Interactive Investor

Insider: Who's buying big on the dips?

21st July 2017 13:24

David Brenchley from interactive investor

Nothing titchy about Micro Focus

All good things come to an end, right? But is this the case with Micro Focus International?

Floating on the stockmarket in May 2005 at 130p, the software company peaked at 2,675p on 8 May 2017 - an incredible gain of almost 2,000% in 12 years.

And as a mark of how far it's come, the firm is paying Hewlett Packard Enterprises $8.8 billion (£6.8 billion) for the American company's software business assets. When the deal completes - likely on 1 September - Micro Focus will be one of the world's largest pure play software companies.

Since IPO, it's barely paused for breath, with just three notable pull-backs - in late 2015 when it announced a board restructure, after the Brexit vote and following Donald Trump's election win - and continued to smash expectations.

So, when it could only hit the lower end of its profit target at final results last Wednesday, investors were left scratching their heads. The shares closed down 8%, slipping below £20 for the first time since November.

Analysts at broker Investec called the results "a reality check", claiming "the investment story is changing and risk profile increasing". Both it and UBS are cool on the stock, with 'hold' and 'neutral' recommendations respectively.

However, there's no dampening Kevin Loosemore's enthusiasm. The chairman has just shelled out £1 million on 49,000 Micro Focus shares at 2,170p. After recovering to £22.30 in the past week, Loosemore's currently sitting on a paper profit in excess of £29,000!

Loosemore has been with the company since the listing and is currently its largest individual shareholder. Appointed executive chairman in 2011, having been non-executive chair for six years, he held similar roles with IT firm Morses and the Nationwide building society.

Not only has Micro Focus delivered stellar share price performance, it's also increased its dividend every year since listing, this year by 32% to 88.06 US cents. All told, it's delivered a 10-year compound annual growth rate in the payout of 29.8%.

Loosemore, formerly of Motorola and IBM, says Micro Focus will continue to deliver the 15-20% shareholder return per annum it targets through medium-term low single-digit revenue growth, industry-leading margins and strong cash conversion. And he's certainly put his money where his mouth is.

Puffing on Imperial Brands

Wasting no time in 'buying on the dips' is new non-executive director at Imperial Brands, Simon Langelier. The 30-year veteran of US tobacco peer Philip Morris International took up his new role on 12 June, and made his first purchase five weeks later, picking up 24,100 shares at just below 3,450p. All told, it's an investment of £830,666.

Langelier brings a different tack to the Imperial Brands board and currently chairs Canadian firm PharmaCielo, which supplies medicinal-grade cannabis products.

Imperial slipped to a seven-month low at 3,390p days before Langelier linked up with the owner of cigarette brands Gauloises and Rizla, taking its losses since mid-April to 14%. Since then, the shares have ticked up 3% to 3,502p.

And Langelier is in good company. We recently heard that UK-focused fund manager Neil Woodford sold out of rival British American Tobacco, preferring IMB instead.

And broker Investec agrees. Consensus estimates for 2017 earnings per share (EPS) of 271.4p put the stock on a forward price/earnings (PE) ratio of 12.9 times. That's "an unusually wide discount" to BATS on 18.5 times, according to analyst Alicia Forry.

Fellow broker UBS tips the stock up to 4,100p, which implies upside of 17% and would represent a tidy profit for Langelier of over £150,000!

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.