Is Rights and Issues Investment Trust Public Limited Company's (LON:RIII) Shareholder Ownership Skewed Towards Insiders?

Simply Wall St

Sun, Nov 22, 2020, 11:24 PM 5 min read

The big shareholder groups in Rights and Issues Investment Trust Public Limited Company (LON:RIII) have power over the company. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. I quite like to see at least a little bit of insider ownership. As Charlie Munger said 'Show me the incentive and I will show you the outcome.

With a market capitalization of UK£142m, Rights and Issues Investment Trust is a small cap stock, so it might not be well known by many institutional investors. Taking a look at our data on the ownership groups (below), it seems that institutions are noticeable on the share registry. Let's take a closer look to see what the different types of shareholders can tell us about Rights and Issues Investment Trust.

Check out our latest analysis for Rights and Issues Investment Trust

ownership-breakdown — LSE:RIII Ownership Breakdown November 23rd 2020

What Does The Institutional Ownership Tell Us About Rights and Issues Investment Trust?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

Rights and Issues Investment Trust already has institutions on the share registry. Indeed, they own a respectable stake in the company. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. 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 Rights and Issues Investment Trust's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth — LSE:RIII Earnings and Revenue Growth November 23rd 2020

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Hedge funds don't have many shares in Rights and Issues Investment Trust. The company's largest shareholder is Jarvis Securities plc, Asset Management Arm, with ownership of 10%. For context, the second largest shareholder holds about 7.1% of the shares outstanding, followed by an ownership of 6.5% by the third-largest shareholder. Simon John Knott, who is the third-largest shareholder, also happens to hold the title of Member of the Board of Directors.

We also observed that the top 9 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. We're not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of Rights and Issues Investment Trust

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

It seems insiders own a significant proportion of Rights and Issues Investment Trust Public Limited Company. Insiders own UK£25m worth of shares in the UK£142m company. This may suggest that the founders still own a lot of shares. You can click here to see if they have been buying or selling.

General Public Ownership

The general public holds a 27% stake in Rights and Issues Investment Trust. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Rights and Issues Investment Trust , and understanding them should be part of your investment process.

Of course this may not be the best stock to buy. So take a peek at this free free list of interesting companies.

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.

This article by Simply Wall St is general in nature. 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.

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