Laggards? AJ Bell Directors/PDMRs’ share sales, Numis, Invesco and the FCA

On Friday, 22nd May 2020 at 16:16 an RNS announced that Fergus Lyons (a Managing Director at AJ Bell) had sold 1.25 million shares at 448.637p and his wife another 25,000. Michael Summersgill (CFO) sold 5,000 shares and his wife sold 420,00o on 21 May 2020 at the same price.

However, a day earlier on Thursday 21 May at 16.51, AJ Bell announced in an RNS that Invesco “has today indicated its intention to sell up to approx 31 million shares” in a placing, organised by Numis, who are the broker for AJ Bell. It was an accelerated book build process with the price decided after it closed. The placement was “successful” and all the shares on offer were sold at 400p.

The Invesco placing was announced after market close on 21/5 and it’s pretty clear from the intraday price chart that the share price didn’t anticipate the placing (ie it did not leak). I am not sure but it looks to me that the Directors/PDMRs trades happened in the morning.

It would be interesting – given that MiFID II requires the information to be collected – to know the timings of director’s share bargains (instruction and execution), mainly to understand whether other shareholders have a reasonable opportunity to absorb new information before the erstwhile insiders enter the market.

It would also be interesting to know whether the directors were made aware of the placing by Numis as a matter of course and, if so, when. I don’t know whether that happens, but presumably in that case they would have been precluded from trading.

On 21 May 2020, AJ Bell announced its interim results at 07.00.

I know that if you are selling a lot of shares you have to give a discount. So this might explain why Invesco had to settle for 10% less than the CFO got for selling his shares.

On 22 May, AJ Bell shares finished the day down 67.5p at 378.5p (according to interactive investor, although the LSE show a few off book trades after the market closed. This decline was mostly before the announcement of the sales by the directors/PDMRs at 4.16pm. Those institutions who bought in the placing would not have known of the directors/PDMRs’ sales.

I am not implying (as others have via chat rooms and social media) that anything has been done illegally. It looks like the sequence was up to 07.00 on 21 May, the directors/PDMRs were insiders and could not trade. I assume that in line with best practice, they informed the Chairman of their intention to sell and got his permission to do so. The trades were then executed. The Board were then informed of the Invesco intention to sell and they then issued an RNS at 16.51, after the market had closed.

However, the AJ Bell Friday 22 May 16.16 RNS leaves some questions unanswered. I think it would be beneficial to have more transparency about:

i) why the directors/PDMRs  were selling shares earlier in the day of, but prior to, the announcement of the Invesco intention to sell?

ii) why the directors/PDMRs got a better price than Invesco?

iii) what time of the day they sold their shares and when they gave their instruction?

iv) how they managed to get such a better price than Invesco? (or perhaps why did Invesco get such a worse price than the directors/PDMRs!)

v) which broker they sold their shares through?

vi) when the Board became aware that a large imminent placing was going to happen?

vii) when did the AJ Bell broker Numis become aware of the directors wishing to sell their shares and when did they become aware of Invesco’s desire to sell some of its shares?

It is also worth noting that Invesco and Numis did not include a retail offer (eg via Primary Bid) in the placing. I cannot get too upset on this occasion as the share price is now trading below the offer price. But there is an important point of principle that AJ Bell, who exist for the benefit of retail customers, should have given a nudge to Invesco to “play the game and include retail old chap”. It is also surprising that Numis are behind the curve on this point of the need to include retail.

I would not like to be accused of bias against AJ Bell, so I should also mention the Peter Hargreaves sale of £550mm of his own shares in February to institutional investors (without a retail tranche) in February. See https://www.globalcapital.com/article/b1llkhqr2hp206/some-shareholders-have-always-been-more-equal-than-others

Last, I think the regulator, the FCA, should change the rules so that the time of trade as well as the date  by a director has to be reported and the RNS doing so has to be announced more promptly in such circumstances. Sales after results announcements frequently occur and this information should be put into the market as soon as possible.

I’m not sure who the laggards are here – the sellers, the brokers, the issuers, Invesco or the regulator.

Disclaimer: I don’t own shares in AJ Bell as I don’t see why a company with turnover of c. £100 million should have a market cap of £1.75 billion (following Friday’s 15% decline the market cap is now £1.55bn). It would seem that neither does Invesco! I am not qualified to give investment advice.

Cliff Weight, ShareSoc Director