Institutional owners may consider drastic measures as Norsk Hydro ASA's (OB:NHY) recent kr13b drop adds to long-term losses

Key Insights

• Institutions' substantial holdings in Norsk Hydro implies that they have significant influence over the company's share price
• 51% of the business is held by the top 6 shareholders
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

To get a sense of who is truly in control of Norsk Hydro ASA (OB:NHY), it is important to understand the ownership structure of the business. We can see that institutions own the lion's share in the company with 39% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, institutional investors endured the highest losses last week after market cap fell by kr13b. The recent loss, which adds to a one-year loss of 6.3% for stockholders, may not sit well with this group of investors. Often called “market makers”, institutions wield significant power in influencing the price dynamics of any stock. As a result, if the downtrend continues, institutions may face pressures to sell Norsk Hydro, which might have negative implications on individual investors.

In the chart below, we zoom in on the different ownership groups of Norsk Hydro.

Check out our latest analysis for Norsk Hydro

What Does The Institutional Ownership Tell Us About Norsk Hydro?

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.

As you can see, institutional investors have a fair amount of stake in Norsk Hydro. 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. 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 Norsk Hydro's historic earnings and revenue below, but keep in mind there's always more to the story.

Hedge funds don't have many shares in Norsk Hydro. Looking at our data, we can see that the largest shareholder is Narings- Og Handelsdepartementet with 35% of shares outstanding. For context, the second largest shareholder holds about 6.0% of the shares outstanding, followed by an ownership of 4.4% by the third-largest shareholder.

On further inspection, we found that more than half the company's shares are owned by the top 6 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 Norsk Hydro

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our most recent data indicates that insiders own less than 1% of Norsk Hydro ASA. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own kr45m worth of shares (at current prices). Arguably recent buying and selling is just as important to consider. You can click here to see if insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 26% stake in Norsk Hydro. 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.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Take risks for example - Norsk Hydro has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.