There are two main reasons insiders invest in their own companies. They either believe business is about to improve or they are of the opinion that the company is undervalued by the market. Whatever the reason, outsiders only need to know one thing: when insiders buy company stock it is because they think that the stock price will go up.
Here, we are going to highlight an insider purchase at Transocean (RIG:US). Transocean is the world’s largest offshore drilling contractor by revenue and has offices in 20 different countries. Royal Dutch Shell, Equinor, and Chevron account for over 50% of revenues. The company is listed on the New York Stock Exchange and currently has a market capitalization of $2.6 billion.
Transocean Ltd: Insider Buying
Form 4 filings show that between 15 July and 18 July, an Independent Director of Transocean, Frederik Mohn, purchased 7.9 million RIG shares at an average price of $4.10 per share. This purchase cost the insider approximately $32.38 million and increased his holding by around 12%.
Our attention was drawn to this insider transaction for two main reasons. Firstly, this is a large purchase in monetary terms. In spending around $32 million on stock, the insider is signaling to investors that he is extremely confident that the share price will move upwards.
Secondly, the insider is an industry veteran who also has considerable investment experience within the sector. Mohn became a director at Transocean when it acquired Songa Offshore SE in 2018. Prior to this he was Chair of the Songa Board from 2014 to 2018. He is also the sole owner and Managing Director of Perestroika, a Norwegian investment company that invests in oil and gas as well as many other industries. He has also served as a Director at other companies within the shipping and oil and gas sectors.
Transocean produced a solid set of Q1 figures. Adjusted EBITDA came in at $245 million versus $210 million in the prior quarter. Total contracted drilling revenues were $653 million against $690 million in Q4 2020 but there were mitigating factors, such as the sale of a rig in Q1 2021 and two less calendar days in the latest numbers. Operating and maintenance expenses reduced to $435 million from $465 million in the previous period. The contract backlog was $7.4 billion.
“We are encouraged by the increasing number of customer inquiries for both harsh-environment and ultra-deepwater projects. And, as the global economy begins to emerge from the pandemic, we are optimistic that oil prices will remain constructive, driving an increase in contracting activity as we move through the year,” said Jeremy Thigpen, President and Chief Executive Officer.
On the back of these reassuring numbers and the confident outlook, we see the recent insider buying at Transocean as bullish. It suggests that the insider believes the business will flourish and that the share price will rise as a result.