Company insiders tend to have the most up-to-date information on their companies’ prospects. If they’re buying stock, it’s often a positive signal that investors should take note of.
Here, we are going to highlight some interesting buying activity from insiders at Avon Rubber PLC (AVON:LN). Avon Rubber designs, manufactures, and sells chemical, biological, radiological, and nuclear respiratory protection systems for military, law enforcement, and fire markets worldwide. It also provides milking point solutions for dairy farmers. It’s listed on the London Stock Exchange and currently has a market capitalization of £1.0 billion.
Avon Rubber PLC: Insider buying
Regulatory filings show that on 21 December, the Chairman of Avon Rubber, Bruce Thompson, purchased 3,000 shares at a price of £30.60 per share. This purchase – which cost the insider approximately £92,000 – boosted his holding by 50%. Non-Executive Director, Victor Chavez, also bought 1,009 shares at a price of £30.55 on the same day.
We see this insider buying activity as bullish for a number of reasons. Firstly, the Chairman has doubled his holding. This suggests he is confident in the company’s future prospects. Secondly, two insiders buying in tandem tells us that there is a consensus of opinion that the stock is undervalued at present.
Strong medium-term prospects
Avon Rubber shares are nearly 30% below where they were trading at the start of December. A trading update released in mid-December informed the market of contract delays with the US military. A failure in first article testing meant that there has been a delay in product approval. The company expects that deliveries under these contracts will now start in first-half 2022, rather than the first-half of 2021 as expected. There was also a protest against a contract to deliver an Integrated Head Protection System to the U.S Army but this is not expected to have a material impact on FY 2021 earnings.
Despite short-term setbacks the company remains bullish on its prospects going forward. “We remain very confident in the group’s medium-term prospects which are built on a strong, growing and visible contract pipeline, together with a clear strategy,” management said in the trading update.
Given Avon Rubber’s outlook statement, we see the insider buying here as a bullish signal. It suggests that the Chairman and Non-Executive Director feel the market has overreacted to recent contract delays.