2iQ Insider Brief: MSFT:US, FLS:DC, LEO:GR

Robert Hable 27 August 2018

Microsoft (MSFT: US)

12-month performance: +49%
Insider activity: Bearish
Buying pattern: Large sale from CEO
Recent news: Strong Q4 results

Multinational technology group Microsoft requires very little introduction. With a market capitalization of around $820 billion, the owner of Microsoft Windows and Microsoft Office is one of the largest companies in the world and the second largest constituent of the S&P 500 index. 

Microsoft shares have enjoyed an excellent run in recent years, along with the rest of the technology sector. Over 12 months, the stock is up 49%. Over a two-year investment horizon, the shares have gained 84%. However, a glance at the long-term chart shows an exponential rise over the last five years that looks worryingly similar to the rise that the stock experienced during the dotcom boom of the late 1990s. Should investors be worried about another significant correction?

Microsoft Performance

Source: 2iQ Research

Recent insider transaction activity could be interpreted as slightly concerning as in the last two weeks, Microsoft CEO Satya Nadella has sold 374,419 shares for a total of $41 million. This is his largest sale since he took over as CEO in 2014, and represents approximately a third of his holding in the company. The CEO also plans to sell more of his holdings on a fixed schedule. While Microsoft advised that this large sale was for “personal financial planning and diversification reasons,” and that “Satya is committed to the continued success of the company”  it’s worth remembering that top-tier directors generally don’t sell on the lows.

FLSmidth (FLS: DC)

12-month performance: +6%
Insider activity: Bullish
Buying pattern: Purchases from CEO, CFO and Chairman
Recent news: Good Q2 results

Headquartered in Copenhagen, FLSmidth is a provider of services and equipment to the minerals and cement industries worldwide. The group supplies customers with everything from single pieces of machinery to complete cement plants and minerals processing facilities. Listed on the Nasdaq Nordic Exchange, the company has a market capitalization of 19.5 billion DKK.

FLSmidth reported second-quarter and half-year results on 8 August and the numbers were solid. For Q2, order intake increased 10.3% on the same period last year, with profit for the period from continuing activities rising 104%. CEO Thomas Schulz stated that the group saw the highest order intake in the Minerals division for several years, which shows that “miners are starting to put action behind their investment plans.

FLSmidth Performance

Source: 2iQ Research

Analysis of recent insider transaction activity here reveals quite a bullish setup. Since the half-year results were announced, four separate top-level executives have purchased stock in the company including the CEO, the CFO and the Chairman – the directors that are likely to have the most detailed insight into the company’s prospects. These purchases suggest the key insiders are confident in the outlook for the company. With that in mind, we think FLSmidth shares could be worth watching closely going forward.

Leoni AG (LEO: GR)

12-month performance: -27%
Insider activity: Bullish
Buying pattern: Purchases from CFO & Chairman
Recent news: Poor Q2 results

Leoni AG is a global provider of products, solutions and services for energy and data management in the automotive sector. Supporting its customers with development and systems expertise, the group provides wires, cables, cable systems, optical fibres as well as intelligent products and smart services. The company has a market capitalization of €1.25 billion and generated sales of €4.9 billion in 2017.

After a strong performance in 2017, Leoni shares have spent the majority of 2018 trending downward and year to date, the stock is down almost 40%. On 15 August, the shares fell from €43 to €37 after the group revealed that during the second quarter, earnings per share declined 31% on the same period a year ago, to €1.29. However, the numbers were not entirely poor, as sales for the quarter rose 6.8% and the company lifted its sales forecast for fiscal 2018 from €5.0 billion to at least €5.1 billion.

Leoni Performance

Source: 2iQ Research

Looking at recent insider transaction activity, it appears that certain top-level directors are confident about the group’s prospects, despite the recent drop in earnings. On 15 August, Chairman Klaus Probst purchased 7,000 shares for approximately €307,000 and then on 16 August, CFO Karl Gadesmann bought 3,000 shares for just under €124,000. These purchases suggest that these two key insiders see value in the stock after a near-40% decline in 2018.

 

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