While investors often focus on CEO purchases when analyzing insider trades, CFO purchases shouldn’t be ignored. CFOs have considerable insights into their firms’ financial health and some studies have found that CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs.
In this report, we are going to highlight a CFO purchase at Sage Group PLC (SGE:LN). Sage is a UK-based technology company that offers cloud-based accounting and payroll solutions. It is listed on the London Stock Exchange and currently has a market capitalization of £6.7 billion.
Sage: insider buying
Our records show that on 23 November, Sage’s CFO Jonathan Howell purchased 17,000 shares in his company at a price of £5.84 per share. This purchase, which cost the insider a total of £99,300, increased his holding from 129,660 shares to 146,660 shares.
This trade is worth highlighting for a couple of reasons. Firstly, it is a substantial purchase. It has increased the size of Howell’s holding by 13%.
Secondly, our records show that Howell has timed purchases well in the past. Back in December 2018, the insider bought 44,000 shares at a price of £5.91 per share. In the next seven months, Sage’s share price rose nearly 40% on the back of strong results.
10% share price fall
Since Sage published its full-year results for the year ended 30 September 2020 on 20 November, the stock has fallen by around 10%. However, the results were not terrible. For the year, total organic revenue was up 3.7% with organic recurring revenue increasing 8.5%. While underlying basic earnings per share were down 1.6%, the full-year dividend was increased by 2% to 17.25p per share.
Looking ahead, Sage advised that for FY2021 it expects organic recurring revenue growth to be in the region of 3% to 5%, weighted towards the second half of the year. Meanwhile, looking beyond FY21, the company said that it expects margins to trend upwards over time, as the investment drives recurring revenue growth and operating efficiencies.
In light of this future outlook, we see the CFO purchase here as bullish. It suggests that the insider is confident about the future and that he expects the share price to recover.