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2 Companies with Management and Substantial Shareholders Putting Their Money Where Their Mouth Is

Credit: reynermedia

One of the more commonly used strategies by investors is to follow insider transactions. Some might even assume that since insiders are “in the know”, they might be better equipped to predict the share price of a company.

Consistent insider purchases may indicate an undervalued share price. On the other hand, there might be others who would turn the argument around and say that if insiders are selling, then bad news is likely to be around the corner. It must be noted though that there is no basis for that as insiders might be selling for their own personal reasons.

In addition, while substantial shareholders (shareholders who control 5% or more of a company) are often not involved with managing the company and are thus not strictly classified as ‘insiders’, their moves with a company’s shares might be worth noting too for the simple reason that substantial shareholders have a big stake in a company and would likely have done the requisite homework.

With these in mind, let’s take a look at two companies that have recently seen insiders and substantial shareholders buying even more shares, or in other words, putting even more money where their mouth is.

1. Singapore Tech Engineering Ltd (SGX: S63)

Singapore Technologies Engineering is an integrated engineering service provider to commercial and defence organisations.

The company operates in four divisions, namely, Aerospace, Electronics, Land Systems and Marine sectors. Singapore Technologies Engineering might be a Singapore-based firm, but it has a global network of over 100 subsidiaries and associated companies located in 24 countries that span the U.S., Europe, Asia, and Australasia.

To support all that global business activity, the company actually has more than 23,000 employees worldwide.

On 28 Jan 2015, investment manager Aberdeen Asset Management Asia Limited purchased around 5.47 million Singapore Technologies Engineering’s shares at S$3.40 each in the open market.

The transaction increased Aberdeen Asset Management Asia’s stake in the engineering outfit from 8.98% to 9.16%. ST Engineering’s shares closed last Friday at S$3.43 and carries a trailing P/E (price to earnings) ratio of 19 and a dividend yield of 4.7% (based on the firm’s dividends over the last 12 months).

2. First Real Estate Investment Trust (SGX: AW9U)

First Real Estate Investment Trust is a REIT that has a focus on ownership of health-care related properties.

The REIT’s current portfolio consists of 16 such properties; 12 of them are in Indonesia, three are in Singapore, and the last is found in South Korea. As of 31 December 2014, these properties are collectively valued at S$1.17 billion.

It is laudable that the REIT has managed to secure full occupancy for its properties, with a weighted average lease expiry of 11.1 years.

On 30 Jan 2015, Mr. Albert Saychuan Cheok, an independent director and chairman of the REIT’s manager, had snapped up 100,000 units at S$1.32 each, thereby raising his direct interest in the REIT from 0.110% to 0.123%.

On the same day, Mr. Ronnie Tan Keh Poo, Director and Chief Executive Officer of the REIT’s manager, also bought a total of 69,500 units at around S$1.31 each in two separate purchases. These transactions had increased his stake in First REIT slightly from 1.243% to 1.253%.

First REIT’s units last traded at S$1.335 on Friday.  At this price, the REIT has a price-to-book ratio of 1.3 and boasts a trailing-12-month distribution yield of 5.98%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.