Could The Fortescue Metals Group Limited (ASX:FMG) Ownership Structure Tell Us Something Useful?

By
Simply Wall St
Published
November 22, 2020
ASX:FMG

Every investor in Fortescue Metals Group Limited (ASX:FMG) should be aware of the most powerful shareholder groups. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. Companies that have been privatized tend to have low insider ownership.

Fortescue Metals Group is a pretty big company. It has a market capitalization of AU$52b. Normally institutions would own a significant portion of a company this size. Our analysis of the ownership of the company, below, shows that institutions are noticeable on the share registry. We can zoom in on the different ownership groups, to learn more about Fortescue Metals Group.

See our latest analysis for Fortescue Metals Group

ownership-breakdown
ASX:FMG Ownership Breakdown November 23rd 2020

What Does The Institutional Ownership Tell Us About Fortescue Metals Group?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Fortescue Metals Group 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Fortescue Metals Group's earnings history below. Of course, the future is what really matters.

earnings-and-revenue-growth
ASX:FMG Earnings and Revenue Growth November 23rd 2020

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don't have many shares in Fortescue Metals Group. Tattarang Pty Ltd is currently the company's largest shareholder with 36% of shares outstanding. Hunan Valin Steel Co., Ltd. is the second largest shareholder owning 10% of common stock, and Capital Research and Management Company holds about 4.9% of the company stock.

After doing some more digging, we found that the top 3 shareholders collectively control more than half of the company's shares, implying that they have considerable power to influence the company's decisions.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Fortescue Metals Group

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our information suggests that Fortescue Metals Group Limited insiders own under 1% of the company. However, it's possible that insiders might have an indirect interest through a more complex structure. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own AU$179m of stock. 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 33% ownership, the general public have some degree of sway over Fortescue Metals Group. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Company Ownership

Our data indicates that Private Companies hold 3.2%, of the company's shares. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Public Company Ownership

It appears to us that public companies own 10% of Fortescue Metals Group. We can't be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Fortescue Metals Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Fortescue Metals Group (at least 1 which is concerning) , and understanding them should be part of your investment process.

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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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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