Could The Downer EDI Limited (ASX:DOW) Ownership Structure Tell Us Something Useful?

Simply Wall St
·4-min read

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The big shareholder groups in Downer EDI Limited (ASX:DOW) have power over the company. Large companies usually have institutions as shareholders, and we usually see insiders owning shares in smaller companies. Companies that have been privatized tend to have low insider ownership.

With a market capitalization of AU$2.5b, Downer EDI is a decent size, so it is probably on the radar of institutional investors. Taking a look at our data on the ownership groups (below), it's seems that institutions own shares in the company. Let's take a closer look to see what the different types of shareholder can tell us about Downer EDI.

See our latest analysis for Downer EDI

ownership-breakdown
ownership-breakdown

What Does The Institutional Ownership Tell Us About Downer EDI?

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.

Downer EDI 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Downer EDI, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
earnings-and-revenue-growth

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Hedge funds don't have many shares in Downer EDI. Our data shows that FIL Limited is the largest shareholder with 6.5% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 6.4% and 5.4%, of the shares outstanding, respectively.

On further inspection, we found that more than half the company's shares are owned by the top 10 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Downer EDI

The definition of company insiders can be subjective, and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our most recent data indicates that insiders own less than 1% of Downer EDI Limited. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around AU$13m worth of shares (at current prices). 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

The general public holds a 39% stake in DOW. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for Downer EDI (1 shouldn't be ignored) that 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.

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