Options exercise allows Gail Kelly to gain without the pain

SELLERS well and truly dominated proceedings this week due to disposals by Westpac chief Gail Kelly and Webjet non-executive director Steven Scheuer.

By InvestSMART · 12 May 2012

By InvestSMART ·
12 May 2012

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SELLERS well and truly dominated proceedings this week due to disposals by Westpac chief Gail Kelly and Webjet non-executive director Steven Scheuer.

Kelly collected options around the time she joined the bank in 2008 and this week she exercised some at $16.80 and sold shares into the market at $22.74.

She exercised nearly $5.4 million of paper, collected more than $560,000 worth of shares for nothing, and sold $3.4 million worth of shares on the market.

Westpac has not been the flashest conveyance in the market over the past two years or so as evidenced by one other disposal made by Kelly in late 2009. Then, she flogged $7 million worth of scrip, getting $23.57 a share.

Meanwhile, Scheuer over at Webjet peeled off 16 per cent of his stake and sold rather well, at least in the short term.

He sold at $3.45 a share and within a few days the scrip was fetching $3.05, though it recovered somewhat by yesterday's closing bell, to finish at $3.15.

Webjet has been one of the stars of the market in recent years, gaining 45 per cent compound or thereabouts over the past few years.

Overall, the scorecard for the week registered $10.6 million to $2.8 million in favour of sellers.

And, speaking of stocks that have notched up strong gains, Jumbo Interactive chief Mike Veverka has sold more shares.

The lottery operator last week said current-year tax-paid earnings would come in at about $5.9 million to $6.2 million up anywhere between 23 per cent and 29 per cent on last year's result.

At the start of the year the shares were fetching 39? Veverka sold at $1.44, but his disposals have been relatively small and he retains more than $13 million of stock.

Multi-director buying was evident in IRESS Market Technology, a market trading systems group.

The shares have fallen from $9.50 to current levels of $6.22 over the past year or so, placing them at about 13 times "adjusted"earnings.

Five directors bought stock following the annual meeting held last week.

Chairman Peter Dunai told the meeting that short-term growth looked weak but that the group had a strong financial position with no debt and core businesses that generated stable healthy earnings and cash flow.

"In due course operating conditions will turn and this, combined with the results of investments we are making now, should provide a sound basis for medium-term growth," he said.

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Frequently Asked Questions about this Article…

What did Westpac chief Gail Kelly do with her Westpac options and shares this week?

Gail Kelly exercised options she collected when she joined Westpac in 2008, using an exercise price of $16.80. She sold shares into the market at $22.74, exercised nearly $5.4 million of option paper, collected more than $60,000 worth of shares for nothing, and sold about $3.4 million worth of shares on the market.

How does exercising options at a fixed price work, based on Gail Kelly’s Westpac transactions?

Exercising options means converting the options into ordinary shares at the agreed exercise price (here $16.80) and then selling those shares at the prevailing market price (here $22.74). The difference between the market sale price and the exercise price represents the immediate gain available when shares are sold after exercise.

What happened when Webjet non-executive director Steven Scheuer sold part of his stake?

Steven Scheuer sold about 16% of his Webjet stake at $3.45 a share. Within a few days the stock fell to $3.05 and then recovered some to close at $3.15. The article notes Webjet has been a strong performer in recent years, gaining around 45% compound over the past few years.

What was the overall market scorecard for director and executive transactions that week?

The article reported that the week’s scorecard registered $10.6 million to $2.8 million in favour of sellers, meaning more value of shares was sold by insiders than bought during that period.

Why did Jumbo Interactive chief Mike Veverka sell shares and what is Jumbo’s earnings outlook?

Mike Veverka sold some shares (he sold at $1.44 according to the report), though his disposals were relatively small and he still retains more than $13 million of stock. Jumbo expects current-year tax-paid earnings of about $5.9 million to $6.2 million, which the article says is up roughly 23%–29% on last year.

What director buying activity took place at IRESS Market Technology and what did the chairman say about the business?

Following the annual meeting, five IRESS directors bought stock. The shares have fallen from $9.50 to around $6.22 over the past year, putting them at about 13 times “adjusted” earnings. Chairman Peter Dunai said short-term growth looked weak but the group had a strong financial position with no debt and core businesses generating stable earnings and cash flow, and that current investments should support medium-term growth.

Should everyday investors read too much into a director selling shares like the Westpac and Webjet examples?

Not necessarily. The article illustrates that director and executive sales can dominate market headlines and cause short-term price moves (for example Webjet fell after a director sale). However, insider sales can reflect personal financial decisions rather than company fundamentals. It’s useful to consider the size and context of the sale alongside company results and longer-term indicators.

Do director purchases and sales in the article point to a clear signal about long-term company prospects?

The article presents mixed signals: IRESS directors bought stock, suggesting confidence in medium-term prospects despite weak short-term growth, while some executives such as Gail Kelly and Steven Scheuer sold shares (some for sizable amounts). These transactions alone aren’t definitive for long-term outlooks and should be weighed with company earnings, balance sheets and strategy.