I am going to take a deep dive into Intercede Group plc’s (AIM:IGP) most recent ownership structure, not a frequent subject of discussion among individual investors. The impact of a company’s ownership structure affects both its short- and long-term performance. 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 IGP’s shareholder registry.
In IGP’s case, institutional ownership stands at 33.77%, 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. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. In the case of IGP, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into IGP’s ownership structure and find out how other key ownership classes 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 IGP is individual insiders, sitting with a hefty 17.72% 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 may be interesting to take a look at what company insiders have been doing with their holdings lately. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.
General Public Ownership
The general public holds 6.67% stake in IGP, thus, representing an important class of owners. 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 IGP should also look at another important group of investors: private companies, with a stake of 37.00%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence IGP’s business strategy. Thus, investors should dig deeper into IGP’s business relations with these companies and how it can affect shareholder returns in the long-term.
IGP’s considerably high level of institutional ownership calls for further analysis into its margin of safety. 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 IGP, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors such as Intercede Group’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- 1. Financial Health: Is IGP’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.
- 2. Past Track Record: Has IGP 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 IGP’s historicals for more clarity.
- 3. 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.
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.