In this analysis, my focus will be on developing a perspective on Canfor Pulp Products Inc’s (TSE:CFX) latest ownership structure, a less discussed, but important factor. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. The effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability to shareholders. While this may be more interesting for long-term investors, short-term investors can also benefit by paying attention to when these institutions trade in order to take advantage of the heightened volatility. Therefore, I will take a look at CFX’s shareholders in more detail.
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Institutional Ownership
In CFX’s case, institutional ownership stands at 19.37%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. For shareholders in CFX, sharp price movements may not be a major concern as active hedge funds hold a relatively small stake in the company. Although this doesn’t necessarily lead to high short-term volatility, we should dig deeper into CFX’s ownership structure to find how the remaining owner types can affect its investment profile.Insider Ownership
I find insiders are an important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. CFX insiders hold a not-so-significant 2.27% stake in the company, which somewhat aligns their interests with that of shareholders. However, a higher level of insider ownership has been linked to management executing on high-returning projects instead of expansion projects for the sake of apparent growth. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.General Public Ownership
The general public holds a substantial 23.53% stake in CFX, making it a highly popular stock among retail investors. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.Public Company Ownership
Potential investors in CFX should also look at another important group of investors: other public companies, with a stake of 54.83%, who are primarily invested because of strategic and capital gain interests. With this size of ownership in CFX, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.Next Steps:
The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for CFX. Rather, you should be examining fundamental factors such as Canfor Pulp Products’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for CFX’s future growth? Take a look at our free research report of analyst consensus for CFX’s outlook.
- Past Track Record: Has CFX been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CFX’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.