The big shareholder groups in Cyclopharm Limited (ASX:CYC) have power over the company. Institutions often own shares in more established companies, while it’s not unusual to see insiders own a fair bit of smaller companies. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.
Cyclopharm is a smaller company with a market capitalization of AU$157m, so it may still be flying under the radar of many institutional investors. Our analysis of the ownership of the company, below, shows that institutions are noticeable on the share registry. We can zoom in on the different ownership groups, to learn more about Cyclopharm.
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
Cyclopharm already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Cyclopharm’s historic earnings and revenue below, but keep in mind there’s always more to the story.
It looks like hedge funds own 11% of Cyclopharm shares. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. Looking at our data, we can see that the largest shareholder is Anglo Australian Christian And Charitable Fund, Endowment Arm with 16% of shares outstanding. With 14% and 11% of the shares outstanding respectively, Barings Acceptance Limited and Chemical Trustee Limited are the second and third largest shareholders. Additionally, the company’s CEO James McBrayer directly holds 6.4% of the total shares outstanding.
To make our study more interesting, we found that the top 4 shareholders control more than half of the company which implies that this group has considerable sway over the company’s decision-making.
While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There is a little analyst coverage of the stock, but not much. So there is room for it to gain more coverage.
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
It seems insiders own a significant proportion of Cyclopharm Limited. Insiders have a AU$17m stake in this AU$157m business. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.
The general public holds a 13% stake in Cyclopharm. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.
With a stake of 8.7%, private equity firms could influence the Cyclopharm board. Sometimes we see private equity stick around for the long term, but generally speaking they have a shorter investment horizon and — as the name suggests — don’t invest in public companies much. After some time they may look to sell and redeploy capital elsewhere.
We can see that Private Companies own 30%, of the shares on issue. It’s hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.
While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example – Cyclopharm has 2 warning signs we think you should be aware of.
If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.
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.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]
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