Why Neolife SA’s (EPA:ALNLF) Investor Composition Impacts Your Returns

Asher Wright

Updated Mon, Mar 26, 2018, 12:28 AM

In this article, I will take a quick look at Neolife SA’s (ENXTPA:ALNLF) recent ownership structure – an unconventional investing subject, but an important one. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. 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 ALNLF’s shareholder registry.

Check out our latest analysis for Neolife

ENXTPA:ALNLF Ownership_summary Mar 26th 18

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 3.23% puts ALNLF on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading.

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 ALNLF is individual insiders, sitting with a hefty 30.66% 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). Another aspect of insider ownership is to learn about their recent transactions. While insider buying is possibly a sign of a positive outlook for the company, selling doesn’t necessarily indicate a negative outlook as they may be selling to meet personal financial needs.

General Public Ownership

A big stake of 30.01% in ALNLF 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 27.01% stake in ALNLF. With a stake of this size, they can be influential in key policy decisions. An investor should be encouraged by the ownership of these institutions who are known to be experts in increasing efficiency, improving capital structure and opting for value-accretive policy decisions.

Private Company Ownership

Another group of owners that a potential investor in ALNLF should consider are private companies, with a stake of 7.40%. While they invest more often due to strategic interests, an investment can also be driven by capital gains through share price appreciation. With this size of ownership in ALNLF, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.

Next Steps:

Institutional ownership level and composition in ALNLF is not high nor active enough to significantly impact its investment thesis. However, ownership structure should not be the only determining factor when you’re building an investment thesis for ALNLF. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Neolife’s share price. I urge you to complete your research by taking a look at the following:

1. Financial Health: Is ALNLF’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. Valuation: What is ALNLF worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ALNLF is currently mispriced by the market.
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.