Research shows that insiders at small-cap companies tend to earn larger profits from their trades than insiders at large-cap companies. The reason for this is that small caps are generally less researched. This means they are often priced inefficiently.
Here, we are going to highlight some insider buying in a British small-cap stock, Maintel Holdings PLC (MAI:LN). Maintel is a fast-growing provider of managed communications services for the private and public sectors. Its core expertise encompasses unified communications, contact center solutions, workforce optimization, networking and security, mobile and connectivity services. The company is listed on the Alternative Investment Market (AIM) of the London Stock Exchange and currently has a market capitalization of £50 million.
Maintel Holdings: Director Dealing
Our records show that on 8 January, Maintel’s Chairman John Booth purchased 80,000 shares at a price of 305p per share. This purchase cost the insider a total of £244,000.
High insider IQ
This insider purchase looks interesting for a number of reasons. Firstly, it is a substantial purchase. Our data indicates that it is the largest insider purchase at Maintel for over two years.
Secondly, Booth has a good track record when it comes to timing his trades. Currently, the insider has a 2iQ short-term trading IQ of 124 which is very high.
Third, Booth has significant company and industry experience. He has been Chairman of Maintel since 1996 and is the largest shareholder in the company. He also chairs or acts as a non-executive director of several private companies in investment management, telecoms, and media and is a consultant to Herald Venture Partners. Given his background, we see this insider purchase as informational.
Confident toneMaintel’s most recent results, published in mid-September, were quite disappointing. For the six months ended 30 June 2020, revenue was down 17% while adjusted earnings per share were down 47%. Covid-19 and a particularly strong performance in H1 2019 were the main two reasons the results were poor.
However, management actually sounded quite confident in relation to the future.
“I am positive about the Group’s prospects in H2. We are now seeing good momentum in the number of projects being implemented and sales orders are increasing across both the public and private sectors. The cloud pipeline is very healthy and I am confident that we will close the year with contracted cloud seats in excess of 100,000, demonstrating the strong progress we are continuing to make in our transition to a cloud and managed services business,” said CEO Ioan MacRae.
In light of this confident tone, we see the insider buying here as a bullish signal. It suggests that the Chairman sees share price upside.