As a long-time investor, I consider many factors when analysing ASX shares. I try to understand business models and industries, analyse financial health and valuation, and think about growth potential, competitors, and more.
Another crucial factor for minority shareholders is high insider ownership. When insiders, such as executives and directors, own a chunk of the company's shares, their interests align closely with those of smaller shareholders.
Their personal financial stake in the company's success often leads to decisions that aim to increase shareholder value.
With this in mind, here are three ASX companies with significant insider ownership that I recommend considering today.
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Reece Ltd (ASX: REH)
If you've recently undertaken bathroom renovations, you may already be familiar with Reece. As a leading Australian distributor of plumbing, waterworks, and bathroom products, Reece has established itself as a go-to source for quality renovation supplies.
Established in 1920 by H.J. Reece, Reece has grown to become a dominant player in the Australian and New Zealand markets, with a significant presence in the US through its acquisition of MORSCO in 2018.
In 1969, the Wilson family became majority shareholders in Reece and currently owns at least 359 million shares, representing 55% of the company according to the FY23 annual report.
Reece's business model focuses on maintaining a broad product range, efficient supply chain management, and investing in digital transformation to enhance customer experience.
The company's revenues have grown from $5.5 billion in FY19 to $8.8 billion in FY23, while net profits after tax (NPAT) have doubled from $202 million to $388 million during the same period.
Reece is a consistent dividend payer, distributing approximately 38% of its FY23 profits to its shareholders, or 25 cents per share. This is equivalent to a dividend yield of 1% at the current share price.
Supply Network Ltd (ASX: SNL)
Supply Network distributes aftermarket parts for commercial vehicles. The company operates through its two main brands: Multispares, which serves Australia, and Globac, which serves New Zealand.
Supply Network provides a wide range of products, including brake, suspension, and engine components, primarily for the truck and bus industries.
It boasts a tight-knit, long-serving board, all with significant shareholdings. According to its FY23 annual report, the company's directors and senior managers own nearly 18 million shares, representing 42% of the company.
The founder, Greg Forsyth, holds a relevant interest in over 12 million shares, or 28% of the company. He has served as the chairman of the Board since 2010. Managing director and CEO Geoff Stewart has been at the helm since 1999. With an engineering background and more than 30 years of industry experience, he holds around 1.4 million shares.
With strong backing from insiders, the company's growth has been impressive. Between FY19 and FY23, its revenue doubled from $123.9 million to $252.3 million, as net profits after tax more than tripled from $8.7 million to $27.4 million. The return on average total equity has been high and growing, reaching 40% in FY23.
The Supply Network share price is traded on a price-to-earnings (P/E) ratio of 32x based on its trailing earnings over the 12 months to December 2023.
Pro Medicus Limited (ASX: PME)
Last but not least, Pro Medicus. This is a leading provider of radiology information systems (RIS), picture archiving and communication systems (PACS), and advanced visualisation solutions across the globe.
The company excels in the United States, the largest medical imaging market in the world. Between FY18 and FY23, its revenues quadrupled from $34 million to $127 million, driven by successful market penetration in both Australia and the US.
For instance, the North American region accounted for nearly 80% of its FY23 revenue. Thanks to this remarkable success, its net profits after tax soared from $10 million to $61 million during the same period.
There are many reasons behind this success story. Pro Medicus capitalised on the medical imaging industry's shift to digital with its innovative and efficient product offerings, positioning itself as a leader in the market.
Above all, however, I think having a solid management team with substantial share ownership was one of the important factors.
As noted in the FY23 annual report, executive key management personnel collectively hold 52.4 million shares, representing 52% of the company. Co-founders Dr Sam Hupert and Anthony Hall maintain a strong influence, each owning 24% of the company.
Dr Hupert co-founded Pro Medicus in 1983 as he recognised the potential for computers in medicine early on. He served as CEO from the company's inception until 2007, became an executive director, and resumed his role as CEO in 2010.
I must admit its current valuation is eye-watering, with a P/E ratio of 184x based on trailing earnings. However, the good news is that the company's earnings have been growing at an annual rate of 30% to 40% since FY21. If this growth continues, its future P/E ratio will become more reasonable.
