Lessons from Mark Barnes’s Purple Group share trades

Mark Barnes founded Purple Group in 1998 and is listed on the Johannesburg Stock Exchange (JSE) in the general financial sector.

Barnes has been a large shareholder in Purple Group from the outset, which is why many investors follow his share trades closely.

Over the last three years, Barnes sold a large part of his holding in the financial services group through numerous trades.

When a director buys or sells shares in their companies, it draws attention because it can give a glimpse of the director’s views on the company’s prospects.

Directors typically have a good understanding of their company operations, and what future performance will look like. This, in turn, can determine the share price.

When a director sells shares in a company without a good reason, the market can see it as a sign that the company is overvalued or that bad news is on the way.

However, as Barnes’ trades have shown, share sales by a director are not always a sell signal for investors.

In 2014, Barnes and late director Ronnie Lubner aligned some of their Purple Group interest by establishing Business Venture Investments (BVI).

On 1 June 2021, it was announced that BVI, of which Barnes was 50% shareholder, would sell just below R200 million of Purple Group shares to Firefly Newco.

The deal was later revised so that BVI would only sell R150 million shares, with the remainder covered by a third party.

The main goal of this sale was to form a strategic partnership with Firefly – a technology-focused investment firm – to build Purple Group into a leading fintech company.

Within ten days after this announcement, Purple Group’s share price jumped from R1.23 to R1.60 – a 30% increase.

In February 2022, Barnes told Financial Mail he sold the shares to settle debt incurred more than a decade ago.

The share sale settled the debt, and he remained a significant Purple Group shareholder with 102.99 million shares in the company. Most of these shares – 70.14 million – are held through BVI.

Barnes added that he had no plans to sell out of his stake in the Purple Group or quit the financial services group.

He told FM he’s still involved in Purple as a director and large shareholder. “The majority of my personal wealth is still in Purple, and I expect it to stay there and grow very well,” he said.

It, therefore, surprised many investors when they learned that Barnes, through his private investments company Calajero, sold R40 million shares on 31 May 2022.

The SENS announcement stated that the reason for the sale was that “Mark Barnes is diversifying his personal portfolio”.

The market did not respond well to this sale. The share price dropped from R2.70 to R2.10 over the next month.

It raises the question of why the market responded so differently, given that both events were Barnes selling shares in the company.

It should be noted that it is assumed that the share sales affected the share price and that it is impossible to assess the impact accurately.

When BVI sold a large number of Purple Group shares in 2021, it gave clear reasons for the sale.

The transaction saw a valuable partner joining Purple Group that could grow the business. It created excitement in the group’s prospects.

In contrast, the reason for the recent Purple Group share sale gave the impression that Barnes thinks his money would perform better elsewhere.

It left investors with many unanswered questions, and the share price declined on the back of this uncertainty.

These examples show that merely mimicking a director’s dealings is not a sound strategy for making buying or selling decisions.

However, directors’ dealings can give valuable insights into the company’s prospects if you understand the reasons behind the transactions.