Should You Be Concerned About EastCoal Inc’s (TSXV:ECXH) Shareholders?

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Peter Morris

Updated Sat, Nov 4, 2017, 10:29 AM

In this article, I’m going to take a look at EastCoal Inc’s (TSXV:ECX.H) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. Since the effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability of shareholders, investors should take a closer look at XYZ’s shareholder registry. All data provided is as of the most recent financial year end.

Check out our latest analysis for EastCoal

Institutional Ownership

Due to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. The company hardly has institutions in its ownership structure, indicating limited concern for investors to worry about potential sell-offs that could arise due to extensive liquidation.

Insider Ownership

Insiders form another 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. 30.95% ownership of ECX.H insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). Another aspect of insider ownership is to learn about their recent transactions. 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

A big stake of 55.35% in ECX.H is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Private Equity Ownership

Private equity firms hold a 13.42% stake in ECX.H. With a stake of this size, they can be influential in key policy decisions. This is a positive sign for potential investors as these firms play an important role in aligning company policy with shareholder returns.

Private Company Ownership

Another group of owners that a potential investor in ECX.H should consider are private companies, with a stake of 0.01%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence ECX.H’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.

What this means for you:

Are you a shareholder? Institutional ownership level and composition in ECX.H is not high nor active enough to significantly impact its investment thesis. If you’re looking to diversify your holdings with high-quality stocks, our free analysis platform has a selection of high-quality stocks with a strong growth potential.

Are you a potential investor? If you are building an investment case for ECX.H, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be looking at fundamental drivers like the future growth expectations around ECX.H, which is a key factor that will influence ECX.H’s share value. Take a look at our most recent infographic report on ECX.H 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.