By Paul Mumford, a senior fund manager at Cavendish Asset Management Given the current poor perf...
By Paul Mumford, a senior fund manager at Cavendish Asset Management
Given the current poor performance of UK equities, investment activity by companies and their directors is starting to gain momentum.
Many private investors are currently facing the dilemma of whether now is the right time to strike and get good value from depressed equity prices.
However signs are emerging that companies and their directors are seeing potential value in the current situation.
Since the downturn in the market there has been a great deal of share buy back activity ' whereby a company purchases its own shares out of distributable profits ' and this is now reaching new heights.
Additionally, evidence suggests that some active investors are hoping to squeeze more from their holdings, building up stakes in businesses that are cash rich.
And the lure of knock down prices is proving too tempting for many corporate investors. Although there has not been frenzied merger and acquisition activity recently, the Bank of Ireland's recent approach to Abbey National, the rumours surrounding a bid for Reuters from Thompson Financial and the recent talks of a Logica/CMG merger may just be the start of a trend of corporate activity focussed on companies whose share prices may have fallen too far.
At the same time, ambitious managers in smaller companies are also seeing the opportunity to cash in on the situation.
A number of quoted companies are considering management buyouts (MBOs), whereby the existing management would take the company private.
One company that has been muting this over a number of months is JJB Sports.
So should private investors take this as a sign that now is the time to start ploughing money back into equities?
Directors' share purchases and company share buy-backs are often seen a stamp of confidence in the market.
After all, the director is in the best position to know the company's prospects and whether the share price represents good value.
Conversely, some commentators see companies buying back their own shares as an indication that they have run out of profitable investment opportunities and thus have limited growth prospects.
However as directors show signs they think the markets have fallen to a low point, the market is starting to look more bullish.
So while private investors are still recommended to err on the side of caution, keeping a finger in the equity pie by maintaining higher than average cash balances, there is a case for a more positive approach.
Value in companies that have cash balance.
Value in companies' own shares.
Value in cheap acquisitions.
Share buybacks indicate lack of growth.
Companies ignoring development.
Companies forced to distribute cash.
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