Should You Be Concerned About Fe Limited’s (ASX:FEL) Investors?

Audra Newberry

Updated Thu, Nov 2, 2017, 10:20 PM

In this article, I’m going to take a look at Fe Limited’s (ASX:FEL) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, which is why we’ll take a moment to analyse XYZ’s shareholder registry. All data provided is as of the most recent financial year end.

Check out our latest analysis for Fe

Institutional Ownership

Institutional investors transact in large blocks which can influence the momentum of stock prices, at least in the short-term, especially when there is a low level of public shares available on the market to trade. A low institutional ownership of 3.94% puts FEL on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Less covered stocks like FEL used to feature in legendary investor Peter Lynch’s portfolio, which would later be bought up by fast-following institutions as the stock gained more popularity.

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. 14.44% ownership of FEL 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). It’s also interesting to learn what FEL insiders have been doing with their shareholdings 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

The general public holds a substantial 25.16% stake in FEL, making it a highly popular stock among retail investors. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Private Company Ownership

Potential investors in FEL should also look at another important group of investors: private companies, with a stake of 5.76%, who are primarily invested because of strategic and capital gain interests. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect FEL’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? Institutional ownership in FEL is not at a level that would concern investors. We are less likely to see sustained downtrends or significant volatility resulting from large institutional trading. If you’re interested in bolstering your portfolio with new stocks and are looking for ideas, take a look at our free app to see my list of stocks with a strong growth potential.

Are you a potential investor? Ownership structure should not be the only determining factor when you’re building an investment thesis for FEL. Instead, you should be evaluating fundamental factors like the relative valuation of FEL, which is an important driver that determines FEL’s share price. Take a look at our most recent infographic report on FEL 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.