Insider: directors spend £500k on this mid-cap stock

Five directors of Inchcape (LSE:INCH) have tied £500,000 of their own money to a five-year plan under which the FTSE 250 firm grows earnings per share by a compound rate of 10%.

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The buyers of shares included chief executive Duncan Tait, having earlier unveiled the auto distribution firm’s new strategy alongside annual results and a £250 million buyback.

He anticipates Inchcape generating £2.5 billion in free cash flow up to the end of 2030, which will be deployed to drive shareholder returns through buybacks and acquisitions. The modelling includes the payment of dividends equivalent to 40% of earnings per share.

Inchcape’s updated strategy is built on projections for compound annual volume growth between 3% and 5% and a “resilient” operating margin of about 6%.

The ultimate objective is for at least 10% earnings per share growth through the cycle, as well as a “consistently high” return on capital employed figure between 25% and 30%.

The company’s distribution platform spans product planning and pricing, import and logistics, brand and marketing through to managing physical sales and aftermarket service channels.

Inchcape’s relationships with vehicle manufacturers stretch back to the 1960s when it first began working in partnership with Toyota.

The company, which recently generated £391 million through disposals that included retail assets in the UK and America, employs 18,000 people globally. It has a portfolio of around 230 distribution contracts with over 60 manufacturing partners.

Trading for 2024 met forecasts as last week’s results showed revenues of £9.3 billion and adjusted profit of £444 million, equivalent to 4% and 5% growth respectively before currency headwinds.

The margin weakened by 30 basis points to 6.3%, but free cash flow generation of £462 million represented a conversion of profit after tax of 151%.

A final dividend of 17.2p is due to be paid on 16 June, representing a 16% decline in the total for the year at 28.5p a share. This follows a 7% fall in earnings per share to 71.3p, reflecting the impact of currency movements.

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Shares weakened from 843p at the end of July to stand at 668p before last week’s results before the strategy presentation sent the stock as high as 730p.

Jefferies, which has a price target of 1,090p, said the new capital allocation policy and greater emphasis on share buybacks made sense in the context of Inchcape’s current low valuation multiple of 8.5 times 2025 forecast earnings.

Peel Hunt added: “We anticipate investors will likely welcome the new targets and updated capital allocation policy. In our view, given the rapidly changing landscape the key to a justified re-rating is execution”

It has retained its 900p price target and Buy rating “given the potential for superior growth”.

Management told investors that it expects 2025 to be another year of growth on a constant currency basis, although with product cycles and the ramp-up of new contracts set to skew the performance to the second half of the year.

Board chair Jerry Buhlmann led last week’s buying with a purchase of £250,000 at 694.5p, while Tait bought £50,000 of shares at 694.8p. Chief financial officer Adrian Lewis, senior independent director Alison Platt and non-executive director also made investments, as did a bunch of other non-execs which tool the total spent way above £500,000.

Tasty sum invested at multi-year lows

Two senior Tate & Lyle (LSE:TATE) directors have spent £157,000 in support of the FTSE 250-listed company’s shares at prices rarely seen in the past 14 years.

The most recent move was by chair David Hearn, who made an investment of £44,000 at 537.6p. A few days earlier, chief financial officer Sarah Kuijlaars spent £113,000 at 564.5p.

The shares are down by a fifth this year, hitting 520p on Wednesday, after a third-quarter trading update by the food ingredients firm dashed hopes for an acceleration in second half volumes.

The slide in Tate’s valuation from October’s 800p has come despite an overhaul to improve earnings quality, which has included the disposal of its US primary products business.

November’s acquisition of US-based CP Kelco, a provider of pectin, speciality gums and other nature-based ingredients, has also made it a leader in the mouthfeel segment.

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Chief executive Nick Hampton said the deal represented a significant acceleration in Tate’s growth-focused strategy.

He added in January: “The muted consumer demand environment and ongoing geopolitical uncertainties reinforce the importance of the steps we have taken to reposition Tate & Lyle over the last six years.”

Updating guidance for the financial year, Tate forecast revenues will be a mid-single digit percent lower with earnings towards the lower end of its growth range of 4% to 7%.

In December, Deutsche Bank backed the shares with a target price of 950p. It said: “From a commercial standpoint we think that the CP Kelco deal makes sense and subscribe to the view that the enlarged business should be able to deliver faster revenue growth.”