If you are a shareholder in ABG Sundal Collier Holding ASA’s (OB:ASC), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. ASC is exposed to market-wide risk, which arises from investing in the stock market. This risk reflects changes in economic and political factors that affects all stocks, and is measured by its beta. Not all stocks are expose to the same level of market risk, and the broad market index represents a beta value of one. A stock with a beta greater than one is expected to exhibit higher volatility resulting from market-wide shocks compared to one with a beta below one.
What does ASC’s beta value mean?
ABG Sundal Collier Holding’s beta of 0.6 indicates that the company is less volatile relative to the diversified market portfolio. This means that the change in ASC’s value, whether it goes up or down, will be of a smaller degree than the change in value of the entire stock market index. ASC’s beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns.
Does ASC’s size and industry impact the expected beta?
ASC, with its market capitalisation of ØRE3.12B, is a small-cap stock, which generally have higher beta than similar companies of larger size. Furthermore, the company operates in the capital markets industry, which has been found to have high sensitivity to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the capital markets industry, relative to those more well-established firms in a more defensive industry. It seems as though there is an inconsistency in risks portrayed by ASC’s size and industry relative to its actual beta value. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Can ASC’s asset-composition point to a higher beta?
An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive. I examine ASC’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. Given that fixed assets make up an insignificant portion of total assets, ASC doesn’t rely heavily upon these expensive, inflexible assets to run its business during downturns. Thus, we can expect ASC to be more stable in the face of market movements, relative to its peers of similar size but with a higher portion of fixed assets on their books. Similarly, ASC’s beta value conveys the same message.
What this means for you:
You could benefit from lower risk during times of economic decline by holding onto ASC. Its low fixed cost also means that, in terms of operating leverage, it is relatively flexible during times of economic downturns. What I have not mentioned in my article here are important company-specific fundamentals such as ABG Sundal Collier Holding’s financial health and performance track record. I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is ASC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has ASC been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ASC’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.