If a CEO is buying company shares, it’s often worth investigating the stock further. CEOs tend to have an intimate understanding of their businesses and are usually way ahead of analysts and portfolio managers when it comes to revenue and earnings trends.
In this report, we are going to highlight a large CEO purchase at RWS Holdings PLC (RWS:US). RWS is a leading provider of technology-enabled language, content, and intellectual property services. Headquartered in the UK, it works with 90 of the top 100 global brands, the top 20 pharmaceutical companies, and 19 of the top 20 patent filers worldwide. It’s listed on the Alternative Investment Market (AIM) of the London Stock Exchange and currently has a market cap of £1.22 billion.
Insider buying at RWS Holdings
Our data shows that on October 26, CEO Ian El-Mokadem purchased 65,000 RWS shares at a price of 302.81p per share. This trade cost the insider approximately £197,000 and increased his holding to 140,000 shares.
87% increase in holding
What stands out here is the fact that Mr. El-Mokadem has increased the size of his holding by 87% with this trade. This suggests that he is very confident that the stock – which has fallen around 50% over the last year and now has quite a low valuation – is undervalued right now.
Strong margin improvement
On the same day that Mr. El-Mokadem purchased stock, RWS Holdings published an encouraging trading statement.
In the update, the company advised that revenues for FY2022 rose by 8%, in line with market expectations. Meanwhile, it said that it expects to deliver “strong margin improvement” for FY2022, underpinned by both the realization of synergies from the integration of SDL, and a continuing increase in translation volumes going through its unique Language eXperience Delivery platform.
As for liquidity, RWS said it remains highly cash generative, and that it had net cash of approximately £71 million at September 30, compared to £45.3 million a year earlier. It noted that it had increased its revolving credit facility from $120 million to $220 million for extra flexibility.
In terms of guidance, RWS said that it’s on track to deliver on the guidance that it set out at its Capital Markets Day for revenue growth, margin, capital expenditure, cash conversion and ROCE for FY2023. It added that it expects to maintain its progressive dividend policy.
In light of this update, we see the insider buying activity here as a bullish indicator.