In this article, I’m going to take a look at Allied Farmers Limited’s (NZSE:ALF) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. Ownership structure of a company has been found to affect share performance over time. 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 ALF’s shareholder registry. All data provided is as of the most recent financial year end.

See our latest analysis for Allied Farmers

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. With an institutional ownership of 1.39%, ALF doesn’t seem too exposed to higher volatility resulting from institutional trading. Less covered stocks like ALF 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

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. ALF insiders hold a significant stake of 20.25% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It may be interesting to take a look at what company insiders have been doing with their holdings lately. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.

General Public Ownership

A big stake of 51.34% in ALF 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 Company Ownership

Another important group of owners for potential investors in ALF are private companies that hold a stake of 27.02% in ALF. 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 ALF’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:

With a low level of institutional ownership, investors in ALF need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. However, ownership structure should not be the only determining factor when you’re building an investment thesis for ALF. Rather, you should be looking at fundamental drivers such as Allied Farmers’s past track record and financial health. I urge you to complete your research by taking a look at the following:

• 1. Financial Health: Is ALF’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

• 2. Past Track Record: Has ALF been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ALF’s historicals for more clarity.

• 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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.