Today, I will be analyzing NZME Limited’s (NZSE:NZM) recent ownership structure, an important but not-so-popular subject among individual investors. Ownership structure of a company has been found to affect share performance over time. 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 NZM’s shareholder registry. All data provided is as of the most recent financial year end.
See our latest analysis for NZME
Institutional Ownership
Institutions account for 70.32% of NZM’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. With hedge funds holding a 15.94% stake in the company, its share price can experience heightened volatility. But I also examine other ownership types and their potential impact on NZM’s investment case.
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. With a minor stake in NZM, insiders seem to have some alignment of interest with shareholders. A higher level of insider ownership has been found to reflect the choosing of projects with higher return on investments compared to lower returning projects for the sake of expansion. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.
General Public Ownership
A big stake of 12.53% in NZM 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 Company Ownership
Potential investors in NZM should also look at another important group of investors: private companies, with a stake of 0.72%, who are primarily invested because of strategic and capital gain interests. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence NZM’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.