RealMoney Silver - Insider Purchases & Buybacks: ACTU

Insider Purchases & Buybacks: ACTU
By Jason Raznick
RealMoney.com Contributor
2/11/2008 2:20 PM EST

I am typically happy to hear about a buyback, except when I feel it is announced just to shield bad results, as I noted was the case with AIG back in October. A buyback announcement from a company is generally considered an indication of value in its shares. My optimism grows when I see insiders purchasing shares as well. One such company is Actuate (ACTU) . (On Stockpickr, you can see the rest of the insider trades and buybacks).

Actuate's board has authorized the increase of the existing stock buyback program by more than 50% for the first quarter of fiscal 2008. Earlier in the month, CEO Peter Cittadini bought 22,000 shares of the company at a price of $4.65 a share, while CFO Daniel Gaudreau purchased 100,000 shares for $4.87. In November last year, Cittadini bought 15,000 shares at $7.45 and Gaudreau purchased 30,000 shares for $7.47 a share.

On Jan. 31, the business intelligence software provider reported record revenues and earnings for the fourth quarter and the year ended Dec 31, 2007. This marked the second consecutive year of record results. The company's operating margins were strong and its cash flows robust.

The economy is slowing and Actuate has high exposure to the financial services industry. While this may cause some concern, the adoption of its Open Source BI has been fairly strong, and I expect this to continue. Also, the company is building on its overseas exposure.

JMP Securities upgraded its rating for Actuate to strong buy from market outperform, while reiterating a price target of $7. The analysts said in their note to clients earlier this month, "We like Actuate because it is one of the few remaining independent business intelligence vendors and has a differentiated product strategy that leverages open source software. We believe Actuate management might be overly conservative with its 10% license downside guidance for 2008. Our industry sources suggest that there could be more upside to the 2008 license number than downside," JMP Securities added.

In October last year, Business Objects was acquired by SAP (SAP) in a $6.8 billion deal. Global Hunter Securities initiated coverage of Actuate in January with a buy rating and a price target of $10. The research note said, "As the only profitable, publicly traded, open-source-focused software company in the business intelligence sector, which has recently experienced a wave of consolidation, we believe Actuate is a ripe acquisition target." In my opinion, possible suitors are Microsoft (MSFT) and SAS Institute (MSFT)

Actuate has been generating compelling growth in revenues and earnings. Its performance on other financial metrics has also been strong. The company offers an return on equity of 22.56%, no debt and has a PEG ratio of 0.70. Shares are down around 40% year to date, trading significantly below their 52-week high of $8.99. I consider this as a good opportunity to buy Actuate. I believe the company will generate good returns over the next 12 to 18 months.

(On Stockpickr, you can see the rest of the insider trades and buybacks portfolio).