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In the wake of Barratt Developments plc’s (LON:BDEV) latest UK£179m market cap drop, institutional owners may be forced to take severe actions


Key Insights

  • Significantly high institutional ownership implies Barratt Developments’ stock prices are sensitive to their trading actions.
  • The top 19 shareholders own 50% of the company
  • Insiders have been buying lately

If you want to know who really controls Barratt Developments plc (LON:BDEV), then you’ll have to look at the makeup of its share registry. With 86% stake, institutions possess the maximum shares in the company. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And so it follows that institutional investors was the group most impacted after the company’s market cap fell to UK£4.4b last week after a 3.9% drop in the share price. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 20% might not go down well especially with this category of shareholders. Institutions or “liquidity providers” control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. As a result, if the downtrend continues, institutions may face pressures to sell Barratt Developments, which might have negative implications on individual investors.

In the chart below, we zoom in on the different ownership groups of Barratt Developments.

Check out our latest analysis for Barratt Developments

LSE:BDEV Ownership Breakdown January 23rd 2023

What Does The Institutional Ownership Tell Us About Barratt Developments?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

As you can see, institutional investors have a fair amount of stake in Barratt Developments. 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. 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 Barratt Developments, (below). Of course, keep in mind that there are other factors to consider, too.

earnings-and-revenue-growth
LSE:BDEV Earnings and Revenue Growth January 23rd 2023

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don’t have a meaningful investment in Barratt Developments. BlackRock, Inc. is currently the company’s largest shareholder with 9.9% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 6.5% and 4.5%, of the shares outstanding, respectively.

A closer look at our ownership figures suggests that the top 19 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Barratt Developments

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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.

Our data suggests that insiders own under 1% of Barratt Developments plc in their own names. It’s a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own UK£9.6m worth of shares. 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 13% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Barratt Developments. 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:

It’s always worth thinking about the different groups who own shares in a company. But to understand Barratt Developments better, we need to consider many other factors. Take risks for example – Barratt Developments has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether Barratt Developments is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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