A look at the shareholders of Downer EDI Limited (ASX:DOW) can tell us which group is most powerful. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. Companies that used to be publicly owned tend to have lower insider ownership.
With a market capitalization of AU$3.5b, Downer EDI is a decent size, so it is probably on the radar of institutional investors. Taking a look at our data on the ownership groups (below), it seems that institutional investors have bought into the company. Let's take a closer look to see what the different types of shareholders can tell us about Downer EDI.
What Does The Institutional Ownership Tell Us About Downer EDI?
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
We can see that Downer EDI does have institutional investors; and they hold a good portion of the company's stock. 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 Downer EDI's historic earnings and revenue below, but keep in mind there's always more to the story.
Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in Downer EDI. Fidelity International Ltd is currently the company's largest shareholder with 7.4% of shares outstanding. With 5.4% and 4.6% of the shares outstanding respectively, Nikko Asset Management Co., Ltd. and L1 Capital Pty. Limited are the second and third largest shareholders.
A closer look at our ownership figures suggests that the top 18 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. 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 Downer EDI
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.
Our most recent data indicates that insiders own less than 1% of Downer EDI Limited. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around AU$18m 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
With a 45% ownership, the general public have some degree of sway over Downer EDI. 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.
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Downer EDI (at least 1 which is concerning) , and understanding them should be part of your investment process.
If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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. 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.
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