Why Unilever PLC's (LON:ULVR) Ownership Structure Is Important

I am going to take a deep dive into Unilever PLC’s (LON:ULVR) most recent ownership structure, not a frequent subject of discussion among individual investors. The impact of a company's ownership structure affects both its short- and long-term performance. If an activist institution invests the same amount of capital in a stock as a passive long-term pension fund, the implications are potentially different for key corporate financing decisions such as the use of excess cash or the source of financing. While these are more of a long-term investor’s concern, short-term investors may find the impact of institutional trading overwhelming enough to lose out on what could be a potential opportunity. Therefore, I will take a look at ULVR's shareholders in more detail.

See our latest analysis for Unilever

Institutional Ownership

ULVR's 37.08% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public shares available on the market to trade. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. For shareholders in ULVR, 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 ULVR's ownership structure to find how the remaining owner types can affect its investment profile.

Insider Ownership

Insiders form a group of important ownership types as they manage the company's operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. Although individuals in ULVR hold only a minor stake, given ULVR is a large-cap company, it is relatively meaningful. This is a good sign for shareholders as the company's executives and directors have their incentives directly linked to the company's performance. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.

General Public Ownership

A substantial ownership of 58.48% in ULVR is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses.

Private Company Ownership

Another important group of owners for potential investors in ULVR are private companies that hold a stake of 0.037% in ULVR. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence ULVR's business strategy. Thus, investors not need worry too much about the consequences of these holdings.

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 enable shareholders to comfortably invest in the company while avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only determining factor when you’re building an investment thesis for ULVR. Instead, you should be evaluating company-specific factors such as Unilever's past track record and financial health. I urge you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for ULVR’s future growth? Take a look at our free research report of analyst consensus for ULVR’s outlook.
2. Past Track Record: Has ULVR 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 ULVR's historicals for more clarity.
3. 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.

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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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.