12-month performance: -23% Insider activity: Bullish Insider buying pattern: Large purchase from CFO Recent news: Poor full-year results
Insider transaction activity from top-tier insiders such as CEOs and CFOs can provide powerful insights for investors. No one has more information on an organization’s products and prospects than its leaders. If these insiders are buying company stock, it’s a sign they’re confident about the future.
Here, we are going to highlight a recent CFO purchase at Diageo PLC (DGE:LN). Diageo is a multinational alcoholic beverages company that owns a vast portfolio of brands including Smirnoff, Johnnie Walker, Baileys, and Tanqueray. The company is listed on the London Stock Exchange and currently has a market capitalization of £60 billion.
Diageo: insider buying
Director/PDMR Shareholding filings reveal that on 11 September, Diageo’s CFO Kathryn Ann Mikells purchased 1,875 Diageo American Depositary Receipts (ADRs). The insider paid $134.85 per security. The total cost of the transaction was $252,844.
Source: 2iQ Research
This director dealing is worth highlighting for a few reasons. Firstly, it’s a relatively large insider purchase, both in nominal and relative terms. This purchase has increased the size of Mikells’ ADR position from 4,653 securities to 6,528 securities – an increase of 40%. This suggests the insider sees considerable value in the stock at present.
Secondly, Mikells has been CFO since November 2015. She has also served as a Director of Diageo since 2015. She is likely to have a very good understanding of the company and the industry. This large purchase is a bullish development.
Diageo shares have underperformed this year due to Covid-19. The outbreak has presented significant challenges for the business, impacting financial performance. For thefinancial year ended 30 June 2020, sales were down 8.7% while earnings per share were down 16%.
However, the company still increased its full-year dividend by 2% which suggests that management is confident in the long-term outlook. “While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in the resilience of our business,” said CEO Ivan Menezes.
Mikells’ recent purchase suggests that she believes Diageo stock is undervalued at present. Given the fact that she is likely to have an information advantage over other investors, we see this insider buying activity as a bullish signal.
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