Breaking Down Surefire Resources NL’s (ASX:SRN) Ownership Structure

In this article, I will take a quick look at Surefire Resources NL’s (ASX:SRN) 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. 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 SRN’s shareholder registry.

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ASX:SRN Ownership_summary Jun 1st 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. With an institutional ownership of 1.22%, SRN doesn’t seem too exposed to higher 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. SRN insiders hold a significant stake of 26.95% 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). 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 67.75% stake in SRN, 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

Another important group of owners for potential investors in SRN are private companies that hold a stake of 4.08% in SRN. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. However, an ownership of this size may be relatively insignificant, meaning that these shareholders may not have the potential to influence SRN’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.

Next Steps:

With a low level of institutional ownership, investors in SRN need not worry about non-fundamental factors such as ownership structure causing large impact on stock prices. However, ownership structure should not be the only focus of your research when constructing an investment thesis around SRN. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Surefire Resources’s share price. I highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Is SRN’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 SRN 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 SRN’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.