Challenger Limited's (ASX:CGF) high institutional ownership speaks for itself as stock continues to impress, up 8.5% over last week

By
Simply Wall St
Published
April 21, 2022
ASX:CGF
Source: Shutterstock

To get a sense of who is truly in control of Challenger Limited (ASX:CGF), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 43% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And last week, institutional investors ended up benefitting the most after the company hit AU$5.1b in market cap. The one-year return on investment is currently 53% and last week's gain would have been more than welcomed.

In the chart below, we zoom in on the different ownership groups of Challenger.

See our latest analysis for Challenger

ownership-breakdown
ASX:CGF Ownership Breakdown April 21st 2022

What Does The Institutional Ownership Tell Us About Challenger?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Challenger does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Challenger, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
ASX:CGF Earnings and Revenue Growth April 21st 2022

We note that hedge funds don't have a meaningful investment in Challenger. The company's largest shareholder is Apollo Global Management, Inc., with ownership of 18%. With 15% and 5.1% of the shares outstanding respectively, MS&AD Insurance Group Holdings, Inc., Asset Management Arm and UBS Asset Management are the second and third largest shareholders.

We also observed that the top 6 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. 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 Challenger

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our information suggests that Challenger Limited insiders own under 1% of the company. 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$6.5m worth of shares (at current prices). It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 39% stake in the company, and hence can't easily be ignored. 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.

Private Equity Ownership

With a stake of 18%, private equity firms could influence the Challenger board. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. To that end, you should learn about the 3 warning signs we've spotted with Challenger (including 1 which makes us a bit uncomfortable) .

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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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