Insiders at small-cap firms often earn large profits from their stock purchases. One reason for this is that the small-cap area of the market tends to be less efficient. This means there’s more potential for large share price movements to the upside.
In this report, we are going to highlight insider buying at a small Swedish firm, Sdiptech AB (SDIP B:SS). Sdiptech is an infrastructure technology group that acquires and develops companies. Its areas of specialism include water and energy, safety and security, air and climate control, and transportation. It is listed on the OMX Nordic Exchange Stockholm and currently has a market capitalization of SEK 15.4 billion.
Sdiptech AB: Insider Buying
Our data shows that since October 26, a number of insiders at Sdiptech have purchased stock at prices of between SEK 411 and SEK 450 per share. Those who have bought shares include:
- CEO Jakob Holm (5,189 shares)
- CFO Bengt Lejdstrom (5,305 shares)
- Head of Special Infrastructure Solutions Anders Mattson (1,675 shares)
- Business Unit Manager Johan Lahiri (300 shares)
- Head of Water & Energy Fredrik Navjord (240 shares)
Combined, these insiders have spent around SEK 5.4 million (approx. USD $630,000 on stock).
Bullish Cluster Buying Pattern
This insider transaction activity represents a classic case of ‘cluster buying.’ This is where multiple insiders are buying company stock simultaneously. This pattern is very bullish as it indicates that there’s a consensus of opinion within the company that the stock is set to move higher.
What stands out about this particular cluster buying pattern is that several top-level insiders are involved. Insiders such as CEO Jakob Holm (CEO since 2015) and CFO Bengt Lejdstrom (CFO since 2018) are likely to have a very good understanding of the company’s performance and prospects. We see the purchases from these insiders as very positive.
Solid Q3 Results
Sdiptech’s interim report for the third quarter of 2021 showed that the company has momentum right now.
For the period, net sales came in at SEK 646.2 million, up 25.3% year on year. Meanwhile, operating profit amounted to SEK 102.5 million, up 18.4% year on year. Cash flow from current operations was SEK 75.4 million (Q3 2020: SEK 74.6 million), corresponding to a cash conversion ratio of 77% (Q3 2020: 59%).
During the quarter, the company established itself in Italy, and also completed its first acquisition in the Netherlands. As a result of this expansion into new markets, and the growth of its infrastructure division, the company raised its annual acquisition target from SEK 90 million in acquired profit growth to SEK 120 - 150 million. The group noted that it has already achieved this target for 2021.
Looking at these results, we see the insider buying here as a bullish indicator. It suggests that insiders believe the stock is undervalued right now.