What You Need To Know About Rainbow Rare Earths Limited's (LON:RBW) Investor Composition

By
Simply Wall St
Published
May 30, 2021
LSE:RBW
Source: Shutterstock

If you want to know who really controls Rainbow Rare Earths Limited (LON:RBW), then you'll have to look at the makeup of its share registry. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said 'Show me the incentive and I will show you the outcome.

With a market capitalization of UK£71m, Rainbow Rare Earths is a small cap stock, so it might not be well known by many institutional investors. In the chart below, we can see that institutions don't own many shares in the company. Let's delve deeper into each type of owner, to discover more about Rainbow Rare Earths.

View our latest analysis for Rainbow Rare Earths

ownership-breakdown
LSE:RBW Ownership Breakdown May 31st 2021

What Does The Institutional Ownership Tell Us About Rainbow Rare Earths?

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.

Institutions have a very small stake in Rainbow Rare Earths. That indicates that the company is on the radar of some funds, but it isn't particularly popular with professional investors at the moment. If the company is growing earnings, that may indicate that it is just beginning to catch the attention of these deep-pocketed investors. We sometimes see a rising share price when a few big institutions want to buy a certain stock at the same time. The history of earnings and revenue, which you can see below, could be helpful in considering if more institutional investors will want the stock. Of course, there are plenty of other factors to consider, too.

earnings-and-revenue-growth
LSE:RBW Earnings and Revenue Growth May 31st 2021

We note that hedge funds don't have a meaningful investment in Rainbow Rare Earths. Adonis Pouroulis is currently the largest shareholder, with 11% of shares outstanding. For context, the second largest shareholder holds about 8.4% of the shares outstanding, followed by an ownership of 6.1% by the third-largest shareholder. In addition, we found that George Sidney Bennett, the CEO has 5.7% of the shares allocated to their name.

On studying our ownership data, we found that 15 of the top shareholders collectively own less than 50% of the share register, implying that no single individual has a majority interest.

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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of Rainbow Rare Earths

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 most recent data indicates that insiders own a reasonable proportion of Rainbow Rare Earths Limited. Insiders have a UK£22m stake in this UK£71m business. I would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public -- including retail investors -- own 54% of Rainbow Rare Earths. This size of ownership gives investors from the general public some collective power. They can and probably do influence decisions on executive compensation, dividend policies and proposed business acquisitions.

Private Company Ownership

Our data indicates that Private Companies hold 11%, of the company's shares. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Rainbow Rare Earths better, we need to consider many other factors. For instance, we've identified 5 warning signs for Rainbow Rare Earths (3 make us uncomfortable) that you should be aware of.

If you would prefer check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, backed by strong financial data.

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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