I am going to take a deep dive into Slater and Gordon Limited’s (ASX:SGH) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure of a company has been found to affect share performance over time. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, I will take a look at SGH’s shareholders in more detail.See our latest analysis for Slater and Gordon
Institutional OwnershipSGH’s 24.02% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public shares available on the market to trade. Although SGH 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. Hedge funds, considered active investors, hold a 8.35% 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 OwnershipI 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. With a minor stake in SGH, insiders seem to have some alignment of interest with shareholders. A higher level of insider ownership has been found to reflect the choosing of projects with higher return on investments compared to lower returning projects for the sake of expansion. I will also like to check what insiders have been doing recently with their holdings. 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 OwnershipThe general public holds 4.08% stake in SGH, which represents a relatively small class of owners. This size of ownership may not be enough to sway a policy decision in their favour, but they can still make a collective impact on company policies if it aligns with other large shareholders.
Private Company OwnershipAnother important group of owners for potential investors in SGH are private companies that hold a stake of 63.06% in SGH. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. An ownership of this size indicates a strong financial backing and has the potential to influence SGH’s business strategy. Thus, investors should dig deeper into SGH’s business relations with these companies and how it can affect shareholder returns in the long-term.
What this means for you:
With significant institutional ownership, including active hedge, existing investors should seek a margin of safety when investing in SGH. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only focus of your research when constructing an investment thesis around SGH. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of Slater and Gordon’s share price. I urge you to complete your research by taking a look at the following:
- 1. Financial Health: Is SGH’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 SGH 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 SGH’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.