Investors who swear by the predictive power of directors’ dealings seized on one interesting transaction this week. Simon Lowth, chief financial officer of BT, used a recent bonus to fork out £298,000 on BT shares, his first significant purchase in the 11 months he has been at the company.
This was hailed by some as a well-informed vote of confidence in the company’s prospects. If anyone understood BT, it was surely the financially astute Mr Lowth, who is seen as a serious candidate to succeed Gavin Patterson, the departing chief executive.
BT’s shares have been tumbling pretty much continuously for two and a half years on worries about its pension liabilities, its obligations to improve broadband quality, its lavish spending on TV sports rights and residual doubts about its controls in the wake of the Italian accounting scandal. At 215p, their closing level yesterday, the shares are near to their lowest for six years and coming under the scrutiny of bottom-fishers in search of oversold, unloved companies.
Was Mr Lowth’s purchase a personally significant investment, anticipating a turning point in BT’s fortunes? Or was it more of a gesture, something to add conviction to his expected application for Mr Patterson’s job?
Unfortunately, it looks more likely to be the latter. The likelihood is that £298,000 is small change for Mr Lowth, who as the former finance director at BG Group sold the oil and gas producer to Shell in 2016. He is thought to have made several million pounds from that deal through his long-term incentive plan bonus. He has been on the main boards of British blue chips for 15 years, usually drawing pay of more than £1 million. In his last two years at Astrazeneca in 2012 and 2013, his pay packets were £1.76 million and £2.08 million. In his past two years at BT he hauled in £1.84 million and £1.01 million.
Even allowing for tax, domestic upsets and philanthropy, it would be hard to imagine a blue-chip business leader of Mr Lowth’s seniority and longevity having a net worth of less than £10 million, say.
If so, he has punted perhaps 3 per cent of his assets on BT. Not enough to convince shareholders who like to see the managers of their assets having plenty of skin in the game and plenty to lose if they fail. Moreover, under BT’s boardroom rules, its finance director is required to build up a personal shareholding equal to 250 per cent of salary over time. The purchase this week only takes him a quarter of the way to target. It was not so much an emphatic buy signal, as more like the least he could get away with.
It doesn’t of course follow that BT is a bad investment. Analysts at Jefferies this week turned from bears to bulls on the group, arguing that Mr Patterson’s imminent departure would help defrost chilly relations with Ofcom, the regulator.
They also argue that if the new generation of alternative providers of fibre-to-the-door connections, the so-called “altnets”, fail to deliver significant numbers of connections, Ofcom will come under pressure from ministers to come up with a more benign regulatory settlement with BT as the price of it stepping up its fibre capital expenditure programme further.
With the pension problem at least parked for the next three years after a settlement with the trustees, the medium-term outlook for BT may not be as gloomy as thought.
By conventional measures, the shares look very cheap, trading on just eight times last year’s adjusted earnings per share and yielding 7.2 per cent. At these bombed-out levels, it is not a good time to sell but it would be a mistake to see Mr Lowth’s little spree as a reason to pile in.
ADVICE Hold
WHY Directors’ purchases aren’t always a sign of a good buy
Iomart
More businesses and public sector organisations are moving away from IT arrangements in which servers and infrastructure are located in their offices.
These physical elements can be held in distant data centres often operated by third parties. It is this change that Iomart believes it can exploit. The Glasgow company provides businesses with the online and digital infrastructure they need. It has data centres around the UK and a growing presence in Europe, Asia and the United States.
Angus MacSween, its co-founder and chief executive, has long said that the transition into the cloud would be slow and steady but could give Iomart huge scope to expand.
There was a 300p per share approach valuing the company at £320 million from a rival, Host Europe, in September 2014, which investors thought should have been accepted. However, the talks broke down and the Aim-listed business, in which Mr MacSween has a near 16 per cent stake, has grown well since then through a mixture of organic expansion and acquisition.
Annual results released this month showed underlying profit rising 7 per cent to £24 million on revenue of £97.7 million for the 12 months to March 31. The company was loss-making and produced turnover of £11.8 million less than in 2009. The most recent dividend was lifted 20 per cent to 71.8p per share while the company’s market capitalisation is more than £425 million.
Mr MacSween has secured further firepower for deals with a new £80 million financing facility. As he points out, most customers tend to stick with IT providers if they do a good job with 90 per cent of Iomart’s revenue classed as recurring. It also has a wide spread of sectors with no single customer accounting for more than 1 per cent of its revenue.
The shares are up more than 20 per cent over the past 12 months and have been changing hands at close to 400p in recent days. Finncap analysts recently increased their target price on the shares from 415p to 450p while N+1 Singer and Shore Capital are among the others who are bullish on Iomart’s prospects.
ADVICE Buy
WHY Loyal customers and strong track record of meeting targets
