Why Tower Resources plc’s (LON:TRP) Investor Composition Impacts Your Returns
In this article, I’m going to take a look at Tower Resources plc’s (AIM:TRP) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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 TRP’s shareholder registry.
Check out our latest analysis for Tower Resources
Institutional Ownership
With an institutional ownership of 42.82%, TRP can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. Hedge funds, considered active investors, hold a 13.48% stake in the company, which may be the cause of high short-term volatility in the stock price. We should dig deeper into the company’s ownership structure to find how the rest of its ownership structure can impact its investment case.
Insider Ownership
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. TRP insiders hold a significant stake of 28.44% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It may be interesting to take a look at what company insiders have been doing with their holdings 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
With 7.64% ownership, the general public are also an important ownership class in TRP. 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 if it aligns with other large shareholders.
Private Company Ownership
Another important group of owners for potential investors in TRP are private companies that hold a stake of 7.62% in TRP. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect TRP’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
Next Steps:
I suggest investors seek some degree of margin of safety due to high institutional ownership in TRP, in particular due to the strong presence of active hedge fund investors. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, if you are building an investment case for TRP, ownership structure alone should not dictate your decision to buy or sell the stock. Instead, you should be evaluating company-specific factors such as Tower Resources’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 TRP’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 TRP 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 TRP’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.
