Today, I will be analyzing AFC Group Holdings Limited’s (NZSE:AFC) recent ownership structure, an important but not-so-popular subject among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct XYZ’s shareholder registry. All data provided is as of the most recent financial year end.

See our latest analysis for AFC

Institutional Ownership

Institutional investors typically buy and sell shares in large magnitudes which can significantly sway the share price, especially when there are relatively small amounts of shares available on the market to trade. A low institutional ownership of 2.29% puts AFC on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Low coverage stocks like AFC tend to be favourite picks of legendary investor Peter Lynch, who used to cash in on the rally supported by institutional buying as the stock gained popularity.

Insider Ownership

I find insiders are another 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. A major group of owners of AFC is individual insiders, sitting with a hefty 46.43% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It may be interesting to take a look at what company insiders have been doing with their holdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.

General Public Ownership

With 4.68% ownership, the general public are a relatively smaller ownership class in AFC. This size of ownership, while considerably small for a public company, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Company Ownership

Another important group of owners for potential investors in AFC are private companies that hold a stake of 46.60% in AFC. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect AFC’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.

What this means for you:

Are you a shareholder? With a low level of institutional ownership, investors in AFC need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. Looking for ways to reinforce your current portfolio holdings? Take a look at our free platform for a list of stocks with a strong growth potential.

Are you a potential investor? Ownership structure should not be the only focus of your research when constructing an investment thesis around AFC. Rather, you should be looking at fundamental drivers like the future growth expectations around AFC, which is a key factor that will influence AFC’s share value. Take a look at our most recent infographic report on AFC for a more in-depth analysis of these factors to help you make a more well-informed investment decision.

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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.