Today, I will be analyzing Big Rock Brewery Inc’s (TSX:BR) recent ownership structure, an important but not-so-popular subject among individual investors. A company’s ownership structure is often linked to its share performance in both the long- and short-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 BR’s shareholder registry.

Check out our latest analysis for Big Rock Brewery

Institutional Ownership

Due to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. BR has institutions holding a stake of just 3.82%, which should not be much of a concern in terms of excessive price volatility. Another important owner type is hedge funds, who tend to be investors with short-term horizons. With 20.12% ownership in BR, they seem to have a significant enough holding to cause a spike in volatility in the short run. However, I would also examine the rest of its ownership structure in more detail to determine how the company’s major shareholders can affect its investment case.

Insider Ownership

I find insiders are another 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. BR insiders hold a significant stake of 32.05% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It may be interesting to take a look at what company insiders have been doing with their holdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.

General Public Ownership

A big stake of 29.72% in BR is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.

Private Company Ownership

Another important group of owners for potential investors in BR are private companies that hold a stake of 14.30% in BR. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. An ownership of this size indicates a strong financial backing and has the potential to influence BR’s business strategy. Thus, investors should dig deeper into BR’s business relations with these companies and how it can affect shareholder returns in the long-term.

Next Steps:

While institutional ownership in BR is low, active hedge funds still have a significant stake in the company. The participation of these active investors has been linked to the volatile nature of share prices. A factor to consider is whether BR offers enough margin of safety compared to its intrinsic value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for BR. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Big Rock Brewery’s share price. I urge you to complete your research by taking a look at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.

• 1. Financial Health: Is BR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why Simply Wall St does it for us. Check out important financial health checks here.

• 2. Past Track Record: Has BR 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 BR’s historicals for more clarity.

• 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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 pass 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.