In this article, I’m going to take a look at Keras Resources Plc’s (AIM:KRS) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. Since the effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability of shareholders, investors should take a closer look at KRS’s shareholder registry. All data provided is as of the most recent financial year end.
In KRS’s case, institutional ownership stands at 61.67%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. Although KRS has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. For shareholders in KRS, sharp price movements may not be a major concern as active hedge funds hold a relatively small stake in the company. Although this doesn’t necessarily lead to high short-term volatility, we should dig deeper into KRS’s ownership structure to find how the remaining owner types can affect its investment profile.
I find insiders are another important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. A major group of owners of KRS is individual insiders, sitting with a hefty 23.69% 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 KRS insiders have been doing with their shareholdings lately. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.
General Public Ownership
The general public, with 8.80% stake, is also an important group of shareholders in KRS. This size of ownership, while considerably large for a public company, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Private Company Ownership
Potential investors in KRS should also look at another important group of investors: private companies, with a stake of 5.83%, who are primarily invested because of strategic and capital gain interests. With this size of ownership in KRS, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.
What this means for you:
The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, if you are building an investment case for KRS, ownership structure alone should not dictate your decision to buy or sell the stock. Instead, you should be evaluating company-specific factors such as Keras Resources’s past track record and financial health. I urge you to complete your research by taking a look at the following:
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.