Trailing herd is a tale of woe
Coffey International is the company that provides the cautionary tale.
The specialist consulting group, which provides engineering, environmental and project management services, enjoyed a good-enough earnings record until a few years ago.
Moving into red-ink territory in 2011 and 2012, though, Coffey's scrip was poleaxed.
But in February this year chief John Douglas, who was appointed in March 2011, reported that a loss had become a profit and that the "turnaround remains well on track".
In the days following those bullish tidings, most of the directors bought shares at about 40¢.
But in April, Douglas reported it unlikely that Coffey would achieve its guidance of earnings exceeding or equalling the first-half result.
Result? The scrip went from 30¢ to 19¢.
This week, Douglas had some more news: earnings before interest, tax, depreciation and amortisation for the current year were tipped at $18 million to $19 million, rather than about $32 million.
Result? The shares went from 23¢ to 10¢.
Now, in an almost carbon-copy performance of an earlier time, most of the board has loaded up again, paying about 11¢.
On this latest lot of scrip, they're ahead of the game; the shares closed at 15¢ on Friday.
And talking of earnings downgrades, get a load of Boom Logistics chief Brenden Mitchell's sortie into the market. He spent 99 grand, adding to recent director buying.
Donald Mercer and Gregory Robinson stepped up to the gold roulette wheel and were down a few dollars a Newcrest Mining share at week's end.
Among sellers, Edmund Bateman gifted a lot of scrip to family, James Murdoch raised some petty cash, while Gail Kelly put a bit more into Westpac shares than she extracted.
Frequently Asked Questions about this Article…
The article uses Coffey International as a cautionary tale: after a February update saying a loss had become a profit, most directors bought shares at about 40¢. By April the chief said it was unlikely Coffey would meet its guidance and the share price fell (the scrip went from 30¢ to 19¢). Later an EBITDA downgrade (now tipped at $18–19 million versus about $32 million) saw the stock fall again (from 23¢ to 10¢). The lesson is that director buying can still coincide with sharp downgrades and big share moves.
The company shifted from optimistic comments about a turnaround to downgrades: chiefs first reported a return to profit, but later said it was unlikely earnings would exceed or equal the first-half result. Most recently EBITDA for the year was tipped at $18–19 million rather than around $32 million, triggering a substantial share price fall.
After the February bullish update directors bought at about 40¢ and the price later fell from 30¢ to 19¢. Following the EBITDA downgrade the shares dropped from 23¢ to 10¢. The board then bought again at about 11¢, with shares closing at 15¢ on the reported Friday.
No — the article highlights that piggy-backing on director buying, even multi-director buying, can be costly. Coffey’s board bought shares before downgrades and big share falls, so director buying is not a guaranteed indicator and should be considered alongside company results and guidance.
The article also noted Boom Logistics chief Brenden Mitchell spent $99,000 adding to recent director buying. Donald Mercer and Gregory Robinson bought Newcrest Mining shares and were down a few dollars at the week’s end. Among sellers, Edmund Bateman gifted shares to family, James Murdoch sold some stock for cash, and Gail Kelly put slightly more into Westpac shares than she sold.
The practical takeaway is to treat director buying as one data point rather than a signal to follow blindly. Check company updates, earnings guidance and the possibility of downgrades — Coffey’s experience shows quick turns in company fortunes can wipe out gains even after board purchases.
Yes — after earlier falls the board loaded up again paying about 11¢ per share. On the Friday cited in the article the shares closed at 15¢, meaning that particular lot was ahead in the short term.
Market reaction was swift: the February optimism led directors to buy at roughly 40¢, but when management later said it was unlikely to meet guidance the price tumbled (30¢ to 19¢). A subsequent formal downgrade of EBITDA expectations to $18–19 million from about $32 million provoked another steep fall (23¢ to 10¢).
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