Insider Buying

2iQ Insider Brief: Metro Bank (MTRO:LN) UDG Healthcare (UDG: LN) Borr Drilling (BDRILL: NO)

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Metro Bank (MTRO: LN)

12-month performance: -8%
Insider activity: Bullish
Buying pattern: Multiple directors including Chairman and CFO
Recent news: Raising of equity capital

Metro Bank is a UK ‘challenger’ bank which offers personal banking services to retail customers as well as business banking services to small and medium-sized commercial customers. The company listed on the London Stock Exchange in early 2016 and currently has a market capitalization of £2.95 billion.

Metro Bank shares have underperformed over the last six months. Trading at over £40 in mid-March, the stock currently trades at just under £30 – a decline of approximately 25%. Reasons for the share price fall include the fact that the bank recently raised more capital to boost its financial strength, and of course, Brexit uncertainty. Yet even after the recent share price decline, the stock still looks expensive relative to its banking peers, as it currently trades on a forward-looking P/E ratio of 55. Should investors steer clear then?

Metro Bank Performance Source: 2iQ Research

Recent insider transaction activity here actually looks quite bullish. For example, in September we have seen significant stock purchases from CFO David Arden, Chairman Vernon Hill and two separate independent directors. That’s a positive signal. Having said that, earlier in the year CEO Craig Donaldson did offload two large tranches of stock, pocketing nearly £5 million. With that in mind, perhaps there are better insider-transaction opportunities than Metro Bank.

UDG Healthcare (UDG: LN)

12-month performance: -18%
Insider activity: Bullish
Buying pattern: Multiple directors including CEO, CFO and Chairman
Recent news: Lowered profit guidance

UDG Healthcare provides advisory, commercial, clinical, communications and packaging services to the healthcare industry. It operates through two main divisions – Ashfield which specializes in advisory, communication, commercial and clinical services, and Sharp which focuses on contract packaging and clinical trial supply chain solutions services. The group has operations in 25 countries and generated revenue of USD $1.2 billion last year. Listed on the London Stock Exchange, the stock is a member of the FTSE 250 index and currently has a market capitalization of £1.7 billion.

UDG Healthcare’s share price has fallen significantly over the last six months after the group has lowered its profit forecasts. In May, the company reported a drop in first-half operating profit for its Sharp division and lowered the full-year outlook for the division due to weaker US demand for bottling. Then, in August the group advised that Ashfield's segment that provides commercial and clinical services to healthcare companies was hit by challenging conditions, with operating profit "well below" the prior-year period. Is this a stock to avoid then?

UDG Healthcare Performance

Source: 2iQ Research

Analysis of recent insider transaction activity at UDG reveals quite a bullish pattern. In September, we have seen sizeable purchases from both CEO Brendan McAtamney and Chairman Peter Gray, and in August, we saw multiple purchases from CFO Nigel Clerkin. Given that top-tier directors tend to have the most insight into a company’s prospects, we would argue that the outlook looks positive here. UDG Healthcare could be worth monitoring for a rebound.

Borr Drilling (BDRILL: NO)

12-month performance: +21%
Insider activity: Bullish
Buying pattern: Multiple directors including CEO, Deputy CEO and Chairman
Recent news: Advised of its intention to pay dividends by 2020

Founded in 2016, Borr Drilling is a Norwegian drilling contractor to the oil and gas industry that owns a fleet of 16 high-specification jack-up drilling rigs. Its strategy is to build up a substantial fleet of jack-up rigs and establish itself as the preferred provider of drilling services in hydrocarbon basins around the world. Listed on the Oslo Stock Exchange, the company currently has a market capitalization of NOK 20.6 billion.

2018 has been quite a volatile year for Borr Drilling’s share price. For example, in early June, the stock was trading above NOK 42, yet by early September the shares had fallen to NOK 32, a three-month decline of 24%. Yet the stock has bounced significantly recently, and is up 20% since 5 September. One reason for this surge is Chairman Tor Olav Troim’s recent comments that the company aims to start paying dividends by 2020.

"We have an ambition to return a significant part of cash back to shareholders quickly...if we don't pay dividends in 2020, we have failed," Troeim told Reuters.

That’s clearly a positive for investors. Are there further share price gains to come then?

Borr Drilling Performance

Source: 2iQ Research

Insider transaction activity here certainly looks very interesting. In the last week, we have seen large stock purchases from both CEO Svend Maier and Deputy CEO Rune Lundetrae, who both acquired more than USD $1.1 million worth of stock. We have also seen a large USD $3.3 million purchase from Chairman Troim (and a USD $653,000 purchase from his partner) as well as a USD $4.4 million purchase from independent director and ex-Seadrill CEO Fredrik Halvorsen. There’s no denying that this is an intense pattern of buying from top level company directors. As such, we believe Borr Drilling could have potential for further share price gains.


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