Why Chesser Resources Limited’s (ASX:CHZ) Ownership Structure Is Important

Will Harmon

Updated Sun, Jan 21, 2018, 5:45 PM

In this article, I will take a quick look at Chesser Resources Limited’s (ASX:CHZ) recent ownership structure – an unconventional investing subject, but an important one. The impact of a company’s ownership structure affects both its short- and long-term performance. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, which is why we’ll take a moment to analyse CHZ’s shareholder registry. All data provided is as of the most recent financial year end.

See our latest analysis for Chesser Resources

Institutional Ownership

With an institutional ownership of 21.22%, CHZ can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade Although CHZ 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 CHZ, 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 CHZ’s ownership structure to find how the remaining owner types can affect its investment profile.

Insider Ownership

Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. CHZ insiders hold a significant stake of 21.94% 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. 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

The general public holds a substantial 36.93% stake in CHZ, making it a highly popular stock among retail investors. 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

Potential investors in CHZ should also look at another important group of investors: private companies, with a stake of 19.90%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence CHZ’s business strategy. Thus, investors should dig deeper into CHZ’s business relations with these companies and how it can affect shareholder returns in the long-term.

What this means for you:

The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, if you are building an investment case for CHZ, ownership structure alone should not dictate your decision to buy or sell the stock. Rather, you should be examining fundamental factors such as Chesser Resources’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Is CHZ’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 CHZ 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 CHZ’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.