Engineering changes

This column was going to be entirely about how I take a keen interest in boardroom changes. For example, when my self-
invested personal pension (Sipp) bought shares in Bodycote last November, it was partly to benefit from the proposed distribution of cash to shareholders following the sale of its testing division, but also partly because I was impressed by Bodycote’s 2008 announcements concerning a new chief executive.

Considerable restructuring of Bodycote was required and the appointment of Stephen Harris as chief executive was encouraging. He was described as having “a strong track record of improving financial and operating performance in multinational businesses” – having worked for Spectris, Powell Duffryn and other companies at board level.

Especially appealing was the announcement that, “as part of his recruitment arrangements”, he had invested £200,000 “of his own money” to acquire 145,474 Bodycote shares. The company would match this purchase, up to a maximum of one share for every share purchased based on the achievement of “robust and challenging” targets over the next three years. On September 2 this year, I reduced my Sipp’s Bodycote holding, selling at 158p per share.

On the same day, I also took profits on part of my Sipp’s holding in Weir Group at 604.5p per share. Weir, the industrial engineer, has been a good performer since I first bought its shares for 436p in July 2006. I increased my stake later that month at 384.23p per share and, in October last year, added more shares at 515.5p and 339.67p.

Under Mark Selway as chief executive, Weir outperformed – in spite of difficult trading conditions. But Selway is leaving at the end of the year to become chief executive of Boral, the Australian building materials group.

On September 16, it was announced that Keith Cochrane, Weir’s finance director, would succeed Selway with effect from November 2. Weir’s announcement was encouraging and highlighted that Cochrane had been “pivotal to the company’s continued success”.

On November 3, Weir issued an interim statement that said that the board expected an increase in current year profit from continuing operations towards the “upper end” of analysts’ forecasts – these ranged from £151.6m to £177.1m. All very encouraging.

However, earlier this week, I read Bodycote’s interim statement in which it reported that sales from July 1 to October 31 were 26.4 per cent lower than last year. The company’s financial position remained strong and restructuring plans “remain on track”.

I had a gut feeling to sell my Bodycote holding, so I did, getting 182.3p per share. I also further reduced my holding in Weir at 751p per share.

Gut feelings have produced good returns in the past – while ignoring them (not getting out of the
market before last year’s falls) has led to needless losses. The new bosses of Bodycote and Weir may still outperform – but their share prices may be lower next year and so provide reinvestment opportunities.

Kevin Goldstein-Jackson is an active private investor writing about his own investments. He may have a financial interest in any of the companies and trading strategies mentioned.