2iQ Insider Brief: MTU Aero Engines (MTX: GR)Rolls-Royce Holdings PLC (RR/: LN)Lanxess AG (LXS: GR)

Kaloyan Kolev 12 August 2019

MTU Aero Engines (MTX: GR)

 12-month performance: +25%
Insider activity: Bullish
Buying pattern: Purchases from CEO and CFO
Recent news: Lifted full-year guidance

 

MTU Aero Engines is a German manufacturer of commercial and military aircraft engines. An established global player in the industry, the company employs over 10,000 people and has presence in all significant regions and markets worldwide. The stock is listed on the XETRA and currently has a market capitalisation of €11.9 billion.

Shares in MTU Aero Engines have risen 45% in 2019 so far, boosted by a number of strong updates. In February, the group lifted its dividend by 24% after full-year earnings beat targets, while more recently in late July, the group raised its full-year guidance after a strong second quarter.

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Looking at insider transaction activity, we think MTU’s uptrend could have further to run. We say this because earlier this week both CEO Reiner Winkler and CFO Peter Kameritsch purchased a significant quantity of shares in the company – which, in our view, is a bullish signal. Winkler’s purchase of 5,000 shares, which cost nearly €1.1 million, is particularly interesting because it is a very large purchase and the CEO has a good track record of timing his purchases well. While analysts at Societe Generale recently downgraded the stock to “sell” from “hold” on the back of its high valuation, these insider purchases lead us to believe that the stock may continue rising.

 

Rolls-Royce Holdings PLC (RR/: LN)

 12-month performance: -29%
Insider activity: Bullish
Buying pattern: Purchases from CEO and Chairman
Recent news: Solid half-year results

 

Rolls-Royce Holdings is an engineering company that is focused on power and propulsion systems. The company is best known for its commercial aero engines, however, it also develops engines for the defence industry, as well as power systems that are used across a variety of industries. The stock is listed on the London Stock Exchange and currently has a market capitalisation of £14 billion.

 

Rolls-Royce shares have fallen nearly 15% since 30 July. While half-year results released earlier this week were relatively solid with group revenue rising 7% and operating profit jumping 32%, the shares have taken a hit due to news that Indian federal police have opened an investigation into the FTSE 100 company alleging that it improperly used a third-party to conduct business with three Indian state-owned companies. Sentiment towards the stock also appears to have been impacted negatively by the escalation in the trade war between the US and China.

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Analysing insider transaction activity at Rolls-Royce, we think it’s interesting that both CEO Warren East and Chairman of the Board Ian Davis have purchased shares this week. East acquired 13,598 shares for a total cost of just under £100,000, while Davis bought 15,000 shares for a total cost of £109,000. These purchases suggest to us that these insiders are confident about the future and see value in the stock after the recent share price fall. With that in mind, we believe the share price weakness over the last week may have created an attractive entry point.

 

Lanxess AG (LXS: GR)

 12-month performance: -27%
Insider activity: Bullish
Buying pattern: Purchases from multiple directors including CFO and Chairman
Recent news: Solid Q2 results

 

Lanxess is a specialty chemicals company based in Cologne, Germany. The group specialises in the development, manufacturing, and marketing of chemical intermediates, additives, specialty chemicals, and plastics and its products are used in a wide range of industries. The stock is listed on the XETRA and currently has a market capitalisation of €4.6 billion. 

 

After a strong run between mid-June and mid-July, Lanxess shares have experienced weakness in recent weeks after rival BASF – which issued a profit warning on 8 July – said on 24 July that a slump at its basic petrochemicals businesses accounted for most of its weakness in the second quarter. Naturally, this news impacted sentiment towards Lanxess. However, Lanxess’ own second-quarter earnings, released on 2 August, beat forecasts and the group held its full-year outlook steady.

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Looking at insider transaction activity, we think the recent share price pull back may have created a buying opportunity. We say this because earlier this week four top directors, including Chairman of the Management Board Matthias Zachert and CFO Michael Pontzen, acquired more shares for their own personal holdings, spending around €550,000 in total on Lanxess stock. We interpret this buying activity as a bullish signal, as it suggests that these insiders remain confident in relation to the company’s outlook despite a challenging backdrop. With four insiders buying at around the €51 level, we think the outlook for the stock is favourable.

Disclaimer: Neither 2iQ Research GmbH nor its content providers are responsible for any damages or losses arising from any use of this information.

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