Institutional investors may overlook Newcrest Mining Limited's (ASX:NCM) recent AU$732m market cap drop as long-term gains remain positive

By
Simply Wall St
Published
March 19, 2022
ASX:NCM
Source: Shutterstock

To get a sense of who is truly in control of Newcrest Mining Limited (ASX:NCM), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 49% to be precise, is institutions. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Institutional investors was the group most impacted after the company's market cap fell to AU$23b last week. However, the 10% one-year return to shareholders might have softened the blow. But they would probably be wary of future losses.

Let's delve deeper into each type of owner of Newcrest Mining, beginning with the chart below.

View our latest analysis for Newcrest Mining

ownership-breakdown
ASX:NCM Ownership Breakdown March 19th 2022

What Does The Institutional Ownership Tell Us About Newcrest Mining?

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.

Newcrest Mining already has institutions on the share registry. Indeed, they own a respectable stake in the company. 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. 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 Newcrest Mining's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
ASX:NCM Earnings and Revenue Growth March 19th 2022

Newcrest Mining is not owned by hedge funds. The company's largest shareholder is Orbis Investment Management Limited, with ownership of 8.5%. In comparison, the second and third largest shareholders hold about 8.4% and 4.6% of the stock.

Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. 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 Newcrest Mining

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.

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 Newcrest Mining Limited insiders own under 1% of the company. But they may have an indirect interest through a corporate structure that we haven't picked up on. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own AU$35m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

With a 49% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Newcrest Mining. 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.

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 Newcrest Mining (including 1 which is significant) .

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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