In the wake of RHI Magnesita N.V.'s (LON:RHIM) latest UK£43m market cap drop, institutional owners may be forced to take severe actions

Key Insights

• Significantly high institutional ownership implies RHI Magnesita's stock price is sensitive to their trading actions
• 56% of the business is held by the top 3 shareholders
• Insider ownership in RHI Magnesita is 12%

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To get a sense of who is truly in control of RHI Magnesita N.V. (LON:RHIM), it is important to understand the ownership structure of the business. With 47% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And institutional investors saw their holdings value drop by 4.2% last week. The recent loss, which adds to a one-year loss of 36% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the decline continues, institutional investors may be pressured to sell RHI Magnesita which might hurt individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about RHI Magnesita.

See our latest analysis for RHI Magnesita

What Does The Institutional Ownership Tell Us About RHI Magnesita?

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.

We can see that RHI Magnesita does have institutional investors; and they hold a good portion of the company's stock. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of RHI Magnesita, (below). Of course, keep in mind that there are other factors to consider, too.

RHI Magnesita is not owned by hedge funds. MSP Foundation, Endowment Arm is currently the largest shareholder, with 28% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 21% and 6.9%, of the shares outstanding, respectively. Stanislaus Prinz zu Sayn Wittgenstein-Berleburg, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors.

A more detailed study of the shareholder registry showed us that 3 of the top shareholders have a considerable amount of ownership in the company, via their 56% stake.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of RHI Magnesita

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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 RHI Magnesita N.V.. Insiders own UK£116m worth of shares in the UK£963m company. That's quite meaningful. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 12% stake in RHI Magnesita. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Equity Ownership

With an ownership of 21%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Private Company Ownership

We can see that Private Companies own 8.8%, of the shares on issue. 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:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with RHI Magnesita (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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. 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. Simply Wall St has no position in any stocks mentioned.