Research shows that following insider buying at smaller companies tends to be a more profitable strategy than following insider buying at larger firms. Smaller companies are less researched than larger firms, meaning that they offer greater potential for outperformance.
In this report, we are going to highlight some bullish insider buying in a French small-cap stock, Technicolor SA (TCH:FP). Technicolor is engaged in the supply of digital product services to content creators, pay-television operators, and network service providers. It is listed on the Euronext Paris and currently has a market capitalization of €382 million.
Technicolor: insider buying
Our records show that between 3 December and 8 December, Technicolor’s CEO, Richard Moat, purchased stock three times. In total, the insider purchased 290,015 shares, spending around €500,000 on TCH stock.
This insider buying is significant for several reasons. Firstly, Moat has spent a substantial amount of money on stock. His purchases represent the largest amount of insider buying within a quarter at Technicolor for over two years. This suggests that he is confident that the stock can move higher.
Secondly, Moat has a strong track record as a CEO and has successfully led business transformations in the telecoms and media industries. His most recent role was as CEO of Eir Limited, the largest telecom operator in Ireland, where he led a successful turnaround creating shareholder value in excess of €1 billion.
Technicolor has been impacted significantly by the coronavirus this year. Production Services’ film and episodic visual effects and post production activities were affected by the cessation of live action shooting. Meanwhile, DVD Services were hit by the lack of new film releases following cinema closures. As a result of these factors, consolidated revenues for the group were down 19.2% for the first nine months of the year while adjusted EBITDA was down 47% to €106 million.
The group expects performance to improve in the medium term, however. For the full year, Technicolor expects adjusted continuing EBITDA of €169 million. Looking ahead to 2022, it expects to generate adjusted continuing EBITDA of €425 million.
“The Group’s transformation plan has significantly improved underlying profitability and year on year cash flow generation, even though Technicolor has suffered in terms of sales during this difficult period. We therefore remain confident in meeting our 2020 and 2022 outlook, and delivering profitable growth, cash generation and value creation to our shareholders” commented Moat.
In light of this expected turnaround, we see the insider buying here as bullish. It suggests that the CEO is confident that business performance is set to pick up.