Top-level corporate executives such as CEOs and CFOs tend to have an information advantage over other investors. If these insiders are selling company stock, it’s worth taking note.
Here, we are going to highlight large sales by multiple insiders at AJ Bell PLC (AJB:LN). AJ Bell is a UK company that provides online investment platforms and stockbroker services. It’s listed on the London Stock Exchange and currently has a market capitalization of £1.76 billion.
AJ Bell: insider selling
Regulatory filings show that on 3 December Divisional Managing Director at AJ Bell, Charles Galbraith, sold 500,000 AJB shares at a price of £4.35 per share. This sale – which netted the insider approximately £2.175 million – reduced his holding by circa 20%. CFO, Michael Summersgill sold 335,196 shares on the same day, raising £1.458 million, and reducing his holding by circa 25%. Chairman Leslie Platts also sold 115,350 shares along with two other directors.
This insider selling activity looks interesting for a couple of reasons. Firstly, this ‘cluster’ selling involves five prominent insiders. All of these insiders are likely to have a good understanding of the company’s recent performance and near-term prospects.
Secondly, CFO Michael Summersgill and Managing Director Charles Galbraith have made very large sales. This suggests that they see limited share price upside in the near term. Our Insider Model signals that insider sentiment is currently bearish.
Future pressure on margins
AJ Bell had a strong 2020 which led to revenue rising year on year by 21% to £126.7 million and profit before tax up 29% to £48.6 million. Total customers rose 27% to 295,305 and assets under administration rose 8% to £56.5 billion. The high level of volatility within the financial markets in the first half of 2020 helped the company as it led to higher levels of trading activity.
Looking ahead, the company may struggle to replicate this performance in 2021. It is unlikely that equity market volatility in the year ahead will be as elevated as it was in February/March of 2020 when the VIX index rose to levels not seen since the Global Financial Crisis. Moreover, rivals such as Trading 212 and eToro are gaining market share which could put pressure on AJ Bell’s profit margins. The company noted in its recent full-year results that there will be “challenges ahead.”
Given this backdrop, we see the insider selling here as a bearish signal. It suggests that insiders see the shares as fully valued currently.