I am going to take a deep dive into United Food Holdings Limited’s (SGX:AZR) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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 AZR’s shareholder registry. All data provided is as of the most recent financial year end.
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Institutional Ownership
In AZR’s case, institutional ownership stands at 28.48%, 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. Although AZR has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. For shareholders in AZR, sharp price movements may not be a major concern as active hedge funds hold a relatively small stake in the company. Although this doesn’t necessarily lead to high short-term volatility, we should dig deeper into AZR’s ownership structure to find how the remaining owner types can affect its 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. A major group of owners of AZR is individual insiders, sitting with a hefty 56.26% 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. 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
The general public holds a substantial 15.26% stake in AZR, 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.