It has been an exercise well worth doing because it has given us the edge over other investors unaware of the reasons why these insiders have been buying. It has generated some bumper profits, too. For instance, shares in Walker Greenbank have risen 50 per cent since I advised buying at 30p () and last week's recommendation Pilat Media Global () has already surged from 44p to 50p (offer-to-bid). They are far from isolated examples.
Fiberweb weaves its magic
Director buying and potential for earnings upgrades are the main reasons why I recommended purchasing shares in specialist fabrics group Fiberweb ahead of what proved to be a pretty upbeat trading statement last week.
The business manufactures state-of-the-art non-woven materials and fabrics for hygiene and industrial speciality products across Europe, North America and Asia. It is a company that is in the early stages of an earnings recovery and one that has scope to gather momentum as new product launches and market share gains benefit its European operations and an improved product mix boosts margins. Previous cost cutting and a more stable raw material environment are also enhancing earnings so much so that analysts at Panmure Gordon have upgraded their 2010 pre-tax profit estimates from £10.5m to £12m and lifted their 2011 forecast from £12m to £13m. On this basis, EPS of 9.3p are expected this year, rising to 10.3p in 2011.
In the circumstances, it is hardly surprising that the directors were buying in September as I noted when I advised following their lead when the shares were 66p (). It has worked out rather well given they have risen 23 per cent to 81p and we have also banked a 1.7p interim dividend. Still, that only leaves them trading on a 2011 upgraded earnings estimate of 8 and even if the board only maintains the full-year dividend at 4.2p, the yield is still a very healthy 5 per cent. I continue to rate the shares a medium-term low risk buy, but given the earnings momentum coming through I am now looking for my target price of 100p to be hit over a three month time frame, offering a potential 25 per cent upside.
Value to un-Lok’n Store
A significant share purchase by activist investor Laxey Partners and the appearance of another shrewd outsider on the share registrar, investment firm Duart Capital Management, were reasons enough to investegate self storage firm Lok'n Store (). Moreover, the shares offered clear value, trading 45 per cent below end July 2010 net asset value (NAV) forecasts.
In fact, even though the shares have risen from 100p to 125p in the last seven weeks, they still trade 30 per cent below adjusted NAV of 181p and 45 per cent below NAV before deferred tax provision. With occupancy levels up 4 per cent and the company reporting record full-year cash profits of £0.92m, the business is operationally making the progress required to further narrow the gap between the share price and NAV. As a result I am upgrading my year-end price target to 150p a share, which would narrow the discount to underlying NAV to 33 per cent as well as offering a further potential 20 per cent upside.
Wichford Tales
One share that has failed to join in the small cap rally is Wichford which has performed poorly since I advised buying at buying at the equivalent of 8.125p when the property company was in the process of raising £52m by way of a seven-for-one rights issue at 7p a share (Real estate profits, 17 August 2009). They have since fallen to 6.5p, although the board has declared cumulative net dividends of 0.95p which offsets part of the capital loss.
Although there has been no company specific reason to explain the recent fall, some investors are clearly worried that the Coalition's spending review will impact real estate companies with exposure to government leased property given departments will be looking to cut costs. However, it’s worth pointing out that the average unexpired lease length on Wichford’s portfolio is over 8 years, occupancy rates are almost 100 per cent, it’s not over rented (average is £12.50 per sq ft on UK portfolio) and its properties are not highly valued as they offer an initial yield of 7.75 per cent. The company has also restructured its finances, successfully extended all three of its UK debt facilities and will enter into discussions to extend or restructure the one remaining facility - the €53.6m VBG2 facility secured on two German properties - closer to its maturity date of April 2011.
In the circumstances, I see no reason why Wichford should not continue to pay a 0.64p a share annual dividend. In fact, the company has already said that the final dividend will be recommended to shareholders at the time of the final results in mid December for payment in March. In other words the shares now trade on a yield of almost 10 per cent and 24 per cent below the last EPRA net asset value of 8.56p a share which in my view offers clear value. I believe the share price fall is overdone and still rate the shares a medium-term buy at 6.5p.
