Yahoo Finance Could DuluxGroup Limited’s (ASX:DLX) Investor Composition Impacts Your Returns?
I am going to take a deep dive into DuluxGroup Limited’s (ASX:DLX) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure of a company has been found to affect share performance over time. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, I will take a look at DLX’s shareholders in more detail.
Check out our latest analysis for DuluxGroup
Institutional Ownership
DLX’s 49.7% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public 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. Considering hedge funds hold a stake of 5.0% in the company, DLX shares may experience high short-term volatility as this class of institutions are frequently found to sell significantly during market-wide shocks. We should dig deeper into the company’s ownership structure to find how the rest of its ownership structure can impact its investment case.
Insider Ownership
I find insiders are an 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. Although individuals in DLX hold only a 1.5% stake, given DLX is a large-cap company, it is a relatively large amount. This is a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. I will also like to check what insiders have been doing recently with their holdings. 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 43.6% stake in DLX, 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 DLX should also look at another important group of investors: private companies, with a stake of 0.2%, 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 DLX’s business strategy. Thus, investors not need worry too much about the consequences of these holdings.
Next Steps:
I suggest investors seek some degree of margin of safety due to high institutional ownership in DLX, in particular due to the strong presence of active hedge fund investors. This will allow an investor to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around DLX. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of DuluxGroup’s share price. I urge you to complete your research by taking a look at the following:
Future Outlook: What are well-informed industry analysts predicting for DLX’s future growth? Take a look at our free research report of analyst consensus for DLX’s outlook.
Past Track Record: Has DLX 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 DLX’s historicals for more clarity.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
