2iQ Insider Brief: ESSITYB:SS, BAD:CN, PSH:NA

Patrick Hable 20 June 2018

Essity Aktiebolag (ESSITYB: SS)

12-month performance: -10% (ytd)
Insider activity: Bullish
Buying pattern: Multiple directors including CEO and CFO
Recent news: CEO warned of higher costs

Essity is a global hygiene and health company, headquartered in Stockholm, Sweden. The company’s products include tissue paper, baby care, feminine care, incontinence products and wound care.

While Essity appears to be well placed to benefit from the world’s ageing population over the long term, the stock has fallen around 10% in 2018 so far, after Chief Executive Magnus Groth warned in January of higher material costs for the Professional Hygiene and Consumer Tissue divisions.

Yet, an analysis of insider transaction activity here reveals a bullish pattern. Since late March, we have seen a consistent pattern of director buying from a number of different directors, including CEO Groth and CFO Fredrik Rystedt.

Essity Performance
 
In late March, Groth boosted his holding in the company by around 28%, while in late May, Rystedt increased his holding in the company by approximately 23%.

Given that the CEO and the CFO generally have the most detailed insight into a company’s performance and its future prospects, we think Essity could be a stock to keep a close eye on going forward.

Badger Daylighting Ltd. (BAD: CN)

12-month performance: +25%
Insider activity: Bullish
Buying pattern: Multiple directors including CEO and COO
Recent news: Good Q1 results

Badger Daylighting is a Canadian company that specializes in non-destructive hydro excavation services. Badger provides services to a diverse customer base including companies in the oil and gas, energy, construction and transportation industries.

A first quarter trading statement, released in May, revealed a 20% year-on-year increase in revenue for the quarter, while net profit for the three months came in at CAD $8.1 million, up from CAD $3.7 million for the comparative quarter last year. 

Badger Performance


The stock has risen approximately 15% since that Q1 trading statement, taking the one-year gain to around 25%. However, an analysis of recent insider transaction activity suggests that there could be further gains to come.

Since mid-May, we have seen buying activity from President/ CEO Paul Vanderberg, COO John Kelly, as well as a number of other directors. The buying pattern from COO Kelly looks particularly interesting, as the key insider has made four separate purchases since mid-May, taking his holding to 3,265 shares.

Given the intense pattern of director buying that has occurred while the shares have been rising, we believe the stock’s upward trend could continue in the near term. 

Pershing Square Holding Ltd. (PSH:NA)

12-month performance: -9%
Insider activity: Bullish
Buying pattern: CEO buys large stake
Recent news: Poor performance has resulted in a 23% discount to NAV

Pershing Square Holdings Ltd is a closed-end hedge fund vehicle, managed by activist investor Bill Ackman, founder and CEO of Pershing Square Capital Management. A look at recent insider transaction activity reveals a unique situation. 

Ackman has a strong long-term investment track record, however, in recent years, performance at Pershing Square Capital Management has been extremely poor. As a result, investors have lost confidence in the investment manager and the majority of institutional investors including longtime partner Blackstone Group have pulled capital out of the fund. In just a few years, Ackman has seen his hedge fund assets cut in half from over $20 billion in 2015.

Pershing Performance
Yet, with Pershing Square Holdings Ltd, which is a publicly-traded  hedge fund vehicle, investors cannot withdraw their capital, as the vehicle is closed ended. An investor can only sell the security if another investor is willing to buy. Consequently, heavy recent selling has resulted in the security’s discount to NAV widening significantly. Currently, the fund trades with a discount to NAV of around 23%

Is the fund worth a closer look while it’s trading at such a large discount to its NAV? Analysis of recent insider transaction activity suggests it may be. 

The company announced in April that it would be buying back $300 million of its own shares and then in late May, Ackman himself purchased several large tranches of Pershing Square Holdings Ltd, buying $159.8 million, $17.4 million and $570,000 worth of the security in the space of just a few days. Clearly, with the fund trading at such a wide discount to NAV, Ackman sees value at present, and is backing himself to turn things around.

 

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