In this analysis, my focus will be on developing a perspective on Reedy Lagoon Corporation Limited’s (ASX:RLC) latest ownership structure, a less discussed, but important factor. Ownership structure of a company has been found to affect share performance over time. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct XYZ’s shareholder registry. All data provided is as of the most recent financial year end.
Institutional investors typically buy and sell shares in large magnitudes which can significantly sway the share price, especially when there are relatively small amounts of shares available on the market to trade. A low institutional ownership of 8.30% puts RLC on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Stocks with low coverage such as RLC, attracts renowned investor Peter Lynch, who has benefited from the momentum of institutions buying into a stock as it gained popularity.
Insiders form another group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. A major group of owners of RLC is individual insiders, sitting with a hefty 39.91% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It’s also interesting to learn what RLC insiders have been doing with their shareholdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.
General Public Ownership
The general public holds a substantial 25.64% stake in RLC, making it a highly popular stock among retail investors. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.
Private Company Ownership
Potential investors in RLC should also look at another important group of investors: private companies, with a stake of 26.15%, who are primarily invested because of strategic and capital gain interests. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect RLC’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
What this means for you:
Are you a shareholder? Institutional ownership level and composition in RLC is not high nor active enough to significantly impact its investment thesis. Looking for ways to reinforce your current portfolio holdings? Take a look at our free platform for a list of stocks with a strong growth potential.
Are you a potential investor? Ownership structure should not be the only focus of your research when constructing an investment thesis around RLC. Rather, you should be examining fundamental factors like the intrinsic valuation of RLC, which is a key driver of RLC’s share price. Take a look at our most recent infographic report on RLC for a more in-depth analysis of these factors to help you make a more well-informed investment decision.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
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.