Institutional investors are Rolls-Royce Holdings plc's (LON:RR.) biggest bettors and were rewarded after last week's UK£2.5b market cap gain
Key Insights
Significantly high institutional ownership implies Rolls-Royce Holdings' stock price is sensitive to their trading actions
The top 24 shareholders own 50% of the company
To get a sense of who is truly in control of Rolls-Royce Holdings plc (LON:RR.), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 76% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.
Last week’s 9.2% gain means that institutional investors were on the positive end of the spectrum even as the company has shown strong longer-term trends. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 160%.
In the chart below, we zoom in on the different ownership groups of Rolls-Royce Holdings.
View our latest analysis for Rolls-Royce Holdings
What Does The Institutional Ownership Tell Us About Rolls-Royce Holdings?
Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.
As you can see, institutional investors have a fair amount of stake in Rolls-Royce Holdings. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Rolls-Royce Holdings' historic earnings and revenue below, but keep in mind there's always more to the story.
Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Rolls-Royce Holdings. The company's largest shareholder is BlackRock, Inc., with ownership of 5.1%. For context, the second largest shareholder holds about 5.0% of the shares outstanding, followed by an ownership of 4.4% by the third-largest shareholder.
After doing some more digging, we found that the top 24 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.
Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.
Insider Ownership Of Rolls-Royce Holdings
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Our data suggests that insiders own under 1% of Rolls-Royce Holdings plc in their own names. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own UK£3.2m worth of shares (at current prices). It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.
General Public Ownership
The general public-- including retail investors -- own 21% stake in the company, and hence can't easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.
Next Steps:
It's always worth thinking about the different groups who own shares in a company. But to understand Rolls-Royce Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Rolls-Royce Holdings (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.
But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.
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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
