Who Are The Major Shareholders Of China Rapid Finance Limited (NYSE:XRF)?

Seth Doty

Updated Fri, Feb 9, 2018, 5:42 PM

In this article, I’m going to take a look at China Rapid Finance Limited’s (NYSE:XRF) 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. 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 XRF’s shareholder registry.

See our latest analysis for China Rapid Finance

Institutional Ownership

In XRF’s case, institutional ownership stands at 15.56%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. For XRF shareholders, the potential of this type of share price volatility shouldn’t be as concerning as hedge fund ownership is is not significant,indicating few chances of such sudden price moves. While that hardly seems concerning, I will explore further into XRF’s ownership type to find out how it can affect the company’s investment profile.

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. XRF insiders hold a significant stake of 16.89% 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. 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 37.63% stake in XRF, 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 Equity Ownership

Private equity firms hold a 29.92% stake in XRF. 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.

Next Steps:

XRF’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only determining factor when you’re building an investment thesis for XRF. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of China Rapid Finance’s share price. I urge you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for XRF’s future growth? Take a look at our free research report of analyst consensus for XRF’s outlook.
2. Financial Health: Is XRF’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.
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.