Could Royal Mail plc's (LON:RMG) Investor Composition Influence The Stock Price?

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Could Royal Mail plc’s (LON:RMG) Investor Composition Influence The Stock Price?
Simply Wall St April 21, 2020

The big shareholder groups in Royal Mail plc (LON:RMG) 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. We also tend to see lower insider ownership in companies that were previously publicly owned.

Royal Mail isn’t enormous, but it’s not particularly small either. It has a market capitalization of UK£1.4b, which means it would generally expect to see some institutions on the share registry. Taking a look at our data on the ownership groups (below), it seems that institutions are noticeable on the share registry. We can zoom in on the different ownership groups, to learn more about Royal Mail.

What Does The Institutional Ownership Tell Us About Royal Mail?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

As you can see, institutional investors own 81% of Royal Mail. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It’s therefore worth looking at Royal Mail’s earnings history, below. Of course, the future is what really matters.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. We note that hedge funds don’t have a meaningful investment in Royal Mail. Looking at our data, we can see that the largest shareholder is Schroder Investment Management Limited with 15% of shares outstanding. Next, we have Royal Mail Plc, Share Incentive Plan and UBS Asset Management as the second and third largest shareholders, holding 7.8% and 5.9%, of the shares outstanding, respectively.

On studying the facts and figures more closely, we found that 9 of the top shareholders account for 52% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

Researching institutional ownership is a good way to gauge and filter a stock’s expected performance. The same can be achieved by studying analyst sentiments. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Royal Mail

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own less than 1% of Royal Mail plc. Keep in mind that it’s a big company, and the insiders own UK£2.8m worth of shares. The absolute value might be more important than the proportional share. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

With a 11% ownership, the general public have some degree of sway over RMG. While this group can’t necessarily call the shots, it can certainly have a real influence on how the company is run.

1.) Executive Summary

Royal Mail plc, together with its subsidiaries, operates as a universal postal service provider in Europe, North America, Western United States, and Canada.

REWARDS

- Trading at 9.9% below its fair value
- Earnings grew by 231.5% over the past year

RISK ANALYSIS

- Earnings are forecast to decline by an average of -9.9% per year for the next 3 years
- Unstable dividend track record
- Highly volatile share price over past 3 months
- Large one-off items impacting financial results