Could The Western Areas Limited (ASX:WSA) Ownership Structure Tell Us Something Useful?

By
Simply Wall St
Published
November 24, 2020
ASX:WSA

The big shareholder groups in Western Areas Limited (ASX:WSA) have power over the company. Institutions will often hold stock in bigger companies, and we expect to see insiders owning a noticeable percentage of the smaller ones. Companies that used to be publicly owned tend to have lower insider ownership.

Western Areas is not a large company by global standards. It has a market capitalization of AU$589m, which means it wouldn't have the attention of many institutional investors. Our analysis of the ownership of the company, below, shows that institutional investors have bought into the company. Let's delve deeper into each type of owner, to discover more about Western Areas.

View our latest analysis for Western Areas

ownership-breakdown
ASX:WSA Ownership Breakdown November 25th 2020

What Does The Institutional Ownership Tell Us About Western Areas?

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.

Western Areas already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Western Areas' historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
ASX:WSA Earnings and Revenue Growth November 25th 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 Western Areas. Our data shows that Perpetual Investments Management Limited is the largest shareholder with 10% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 5.7% and 5.4%, of the shares outstanding, respectively.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 11 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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 Western Areas

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 Western Areas Limited. But they may have an indirect interest through a corporate structure that we haven't picked up on. It seems the board members have no more than AU$4.0m worth of shares in the AU$589m company. I generally like to see a board more invested. However it might be worth checking if those insiders have been buying.

General Public Ownership

With a 39% ownership, the general public have some degree of sway over Western Areas. 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

It seems that Private Companies own 3.2%, of the Western Areas stock. 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.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Western Areas better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Western Areas you should know about.

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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