Insider trading and Telular by D Klein – 09/01/2009


First I’ll state that insiders buy and sell for different reasons.  I believe corporate insiders have better insights into the health of their company and their trades may provide a snapshot as to how they feel about the future prospects of the corporation, especially as it relates to the price they purchased or sold their stock for.  A single buy or sell probably doesn’t tell us much, but buying or selling meaningful amounts of stock over a short period of time by several insiders could be directly related to the health of the corporation.

Another thing to look at is how many shares do corporate insiders own, are their interests aligned with the shareholders, i.e., is a meaningful amount of their own money at risk.  Since it’s the job of the board to look after shareholders interest they should be required to hold a minimum amount of stock, along with officers, so the interests of all are aligned.

So how does Telular stack up? Below is a table of corporate insider ownership.

Name With Telular since Stock Holdings
Jeffrey Jacobowitz/SIMCOE Partners LP – Director February 2009 1,000,000(1)
Betsy J. Bernard – Director                                            July 2007 15,071
Joseph Beatty – CEO May 2007 100,000
Lawrence S. Baker – Director November 2004 4,527
Jonathan M. Charak – CFO March 2008 15,000
Brian J. Clucas – Director October 2003 4,648
Larry Ford – Director/Chair March 1994 17,108
M. Brian McCarthy – Director July 2007  1,471
George S. Brody – Officer-Sr VP June 2003 25,000
Robert Deering – Officer-Treasurer/Controller/CAO October 2005 25,000
(1) His fund is made up of wealthy investors so he controls 1,000,000 shares. He personally owns 100,000 shares included in the 1m above

I’ll start with the “Board only” members.  Most of these members hold very few shares.  Larry Ford who is the present board chair, and with Telular since 1994 holds 17,108 shares which amounts to a little over 1000 shares a year, not a huge vote of confidence from the chair.  Larry Ford, here since 1994, presided over past management who never aligned their interests with shareholders but managed to enrich themselves at shareholder expense while the company never achieved any modicum of sustained growth.  Larry Ford is setting a terrible example for others, based on his record he clearly has no confidence in the stock at any price.  Maybe its time to remove the last of the old guard, bring in qualified candidates (and a fresh viewpoint) and willing to align their interests with the shareholders.  The one board member whose interests are aligned with the shareholder is Jeffrey Jacobowitz.  Jeffrey was the force behind the past stock buyback program, who before becoming a board member threatened a proxy war, in part because insider interests were not aligned with the shareholders.  The final result was Telular brought him on board (no pun intended) in exchange for dropping the proxy fight, and John Berndt (the previous board chair) did not run for re-election.  J. Jacobowitz purchased 50,000 shares on the open market after becoming a board member, a huge vote of confidence.  The remaining “board only” members with the exception of Betsy Bernard remain on the sidelines.

What about the top officers.  The CEO made three major purchases last year totaling 100,000 shares at an average price of about $2.51, a huge vote of confidence.  The CFO also purchased 7,500 shares in the open market last year but its hard to read much into this since he owned very few shares and could have been under pressure to increase his stake. Other officers who joined the buying frenzy last year was Robert Deering (23,000 shares at $2.60) and George Brody (19,000 shares at $1.49).

Lets look at where the insiders bought, providing some insight as to when they think the stock is undervalued.  The next table is a summary of insider buys over the last two years.

Buy Summary      
Year shares #Buys ave $/sh
2009 50,000 2 $1.68
2008 169,100 15 $2.33

As a group insiders like the growth prospects from an investment perspective when stock drops below $2.35.  As I write this the stock is at $3.11 so assuming there are no surprises in store I suspect we will not see the rash of insider buying that occurred in 2008.

That said, I think its important to, (1) continue the stock buyback program assuming, (2) the company can remain profitable, and (3) free cash flow positive.  If not for the previous stock buyback program the stock would probably be in the low $2 range.  Volume will increase over time if they can continue 1-3 above assuming no surprises.  It probably would not hurt if others stepped up to the plate but at today’s price and given what we know its more hope than anything else since it will take either news of a new contract or a decrease in the outstanding shares to drive the price into the mid single digits.  Needless to say major insider purchases at higher prices should raise a few eyebrows.

I uploaded an excel file that can be downloaded that has a history of open market insider trades on the stock page of the investorexchanges website with a summary of the buys.

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