I believe the MD has made a strategic error in the message of confidence in the future his company that he has sent to his shareholders and the market today. Let's face it, he is paid very well and therefore many people will not believe that there was an underlying financial need to sell all of the options he converted.
As the leader of a company it is my view that one of the most important jobs is to instill confidence in the future upside of the company's share price into both existing and prospective shareholders minds. In my opinion when the MD of a company converts options and sells the same number of shares into the market then this sends a signal to the market that the company is close to fully valued (especially when the 3Y is released after the market has closed). If the leader of EGO had decided to [net net] increase his holding then this would have sent a different message to the market. The other director who exercised options did exactly this and therefore sent a different message to the market. However who am I to believe, the company's leader or a director? Unfortunately I believe the MD!
Therefore although I hold 1.5m EGO and it will result in a loss I must now downgrade the stock to a sell until I am comfortable that management see further upside in the share price of the company. Their current actions don't signal this.
This is a dissappointing result for me because it is likely that I got this trade wrong after having believed that the Perth Basin was a "company maker" that could underpin a share price of over 5 cents per share based on a DCF valuation of prospective future cash flows.
I honestly hope the outcome for shareholders is a good one.
