2 Companies with Substantial Shareholder Activity

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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 as a backdrop, let’s take a look at two companies that have seen substantial shareholder activity over the past two weeks.

1. Religare Health Trust (SGX: RF1U)

Religare Health Trust is a business trust which invests in healthcare assets in India.

According to its latest earnings release (for the three months ended 31 December 2014), the trust owns 18 healthcare assets spread across India and these assets comprise of 12 clinical establishments, four greenfield clinical establishments and two operating hospitals. The total value of Religare Health Trust’s portfolio is estimated to be around S$857 million.

On 16 April 2015, FIL Ltd, an investment management firm, had bought 700,000 shares of Religare Health Trust for a total sum of S$732,900. The transaction had bumped up FIL’s stake in Religare Health Trust from 5.92% to 6.01%.

The trust’s shares last changed hands at S$1.085 last Friday.  At that price, the trust carries a price-to-book (PB) ratio of 1.26 and an annualised distribution yield of 6.7%.

2. SembCorp Industries Limited  (SGX: U96)

Sembcorp Industries is a conglomerate with three distinct business segments: Utilities; Marine; and Urban Development.

Under the Utilities segment, SembCorp Industries provides energy, water, on-site logistics, and solid waste management services to industrial and municipal customers. Meanwhile, the Marine segment provides repair, building, and conversion services for ships and rigs. These two segments are by far the most important for SembCorp Industries, collectively accounting for 93% of the company’s total profit in 2014.

The last segment, Urban Development, sees the company develop and manage projects such as industrial parks, commercial, and residential space in Asia.

Last week, Sembcorp Industries announced that it had been awarded a contract in Myanmar to develop and operate a US$300 million 225-megawatt gas-fired power plant.

The deal marks the company’s first foray into the energy-starved Myanmar (according to Sembcorp Industries’ press release, the country “has one of the lowest electrification rates in the world” and only a third of the country’s 50 million population have access to electricity) and could be seen as a demonstration of the company’s capabilities in providing vital utility services.

On 15 April 2015, Mondrian Investments Partners Limited became a substantial shareholder of Sembcorp Industries through the purchase of 700,000 shares of the firm at an average price of S$4.71 each. The transaction had raised Mondrian’s stake in Sembcorp Industries from 4.99% (that’s just below the 5% threshold for an investor to be considered a substantial shareholder in Singapore’s context) to 5.03%.

Sembcorp Industries closed at S$4.61 last Friday and sells for 10 times its trailing earnings at that price.

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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.