Insider transaction activity can give investors a more complete view of activity within the world’s publicly-listed companies. No one has more knowledge of a company, and its prospects, than its executives and directors.
In this report, we are going to highlight some interesting insider buying at Compass Group PLC (CPG:LN). Compass is a UK food and support services company that has operations in 45 countries. It is listed on the London Stock Exchange and currently has a market capitalization of £25.5 billion.
Compass Group: director dealing
Our records show that in late November, two individuals closely associated with insiders at Compass Group purchased stock. On 25 November 2020, Mrs Serrie Meakins, a person closely associated with Mr Ian Meakins, the new Chairman, purchased 58,362 shares at a price of £14.065 per share. On the same day, Mr David Parry, a person closely associated with Ms Alison Yapp, Group General Counsel and Company Secretary, purchased 2,832 shares at a price of £14.0158 per share. The total value of these insider transactions was approximately £860,000.
This insider activity is worth highlighting for two reasons. Firstly, the purchases are substantial. This buying activity represents the largest amount of insider buying at Compass within a quarter for several years. We see this as a positive development.
Secondly, the purchase from David Parry has increased the size of General Counsel’s holding by 116%. Generally speaking, general counsels are quite risk averse. They usually do not buy a lot of company shares unless they are very confident about the future. This purchase suggests that Yapp is convinced the stock is undervalued right now.
Structural growth opportunities
Compass has been badly impacted by the coronavirus this year. Recent full-year results for the period ended 30 September showed a 19% drop in revenue and a 70% fall in operating profit.
The outlook now appears to be improving, however. In the fourth quarter, the company returned to profitability thanks to contract renegotiations, cost discipline, and improvement in volumes. And looking ahead, the company said that it is “very confident” in its medium and long-term growth prospects. “We remain as excited as ever about the significant structural growth opportunities globally, the potential for further revenue and profit growth, and returns to shareholders over time," said CEO Dominic Blakemore.
Given this confidence from management, we see the insider buying here as bullish. It suggests that insiders expect Compass’ share price – which has fallen nearly 25% year to date – to rebound.