I am going to take a deep dive into Capital Drilling Limited’s (LON:CAPD) most recent ownership structure, not a frequent subject of discussion among individual investors. Ownership structure has been found to have an impact on shareholder returns in both short- and long-term. 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 CAPD’s shareholder registry.
In CAPD’s case, institutional ownership stands at 28.47%, significant enough to cause considerable price moves in the case of large institutional transactions, especially when there is a low level of public shares available on the market to trade. Although CAPD 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 CAPD, 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 CAPD’s ownership structure to find how the remaining owner types can affect its investment profile.
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. 41.86% ownership of CAPD insiders is large enough to make an impact on shareholder returns. In general, this level of insider ownership has negatively affected underperforming (consistently low PE ratio) companies and positively affected the companies that outperform (consistently high PE ratio). Another aspect of insider ownership is to learn about their recent transactions. 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
A substantial ownership of 29.67% in CAPD 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.
CAPD’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This will allow investors 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 determining factor when you’re building an investment thesis for CAPD. Instead, you should be evaluating company-specific factors such as Capital Drilling’s past track record and financial health. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for CAPD’s future growth? Take a look at our free research report of analyst consensus for CAPD’s outlook.
- Past Track Record: Has CAPD 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 CAPD’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 email@example.com.