EUR 850.00 For Business Accounts Only

Morningstar | AON Updated Star Rating from 01 Feb 2019

Aon reported fourth-quarter results that were in line with those of its closest peer, Marsh & McLennan. The company saw solid growth, and its cost-reduction program appears to be on track. We will maintain our $139 fair value estimate and narrow moat rating.

Aon's top-line growth came in at 6% year over year excluding currency effects, acquisitions, and an accounting change. The brokerage side of the company's business is performing well, with the commercial and reinsurance segments up 4% and 8% year over year, respectively, on an organic basis. We think the business continues to see a slight uplift from improved insurance pricing, with another relatively large dose of catastrophe losses this year likely to help maintain this trend in 2019. Results on the consulting side of Aon's business were a bit more mixed, but a 4% organic growth rate for the mature retirement segment is a reasonable result. An 8% organic growth rate for the health segment supports our view that this is the best engine for growth on the consulting side.

Aon continues to make good progress with its cost-reduction program. The company saw strong margin improvement, with adjusted operating margins coming in at 25.8% during the fourth quarter compared with 23.0% in the year-ago period. This came with an added expense of $119 million in restructuring costs during the fourth quarter. After evaluating the progress of the restructuring program in its final year, Aon has increased its estimate of total expected spending on its cost-reduction program by $200 million (to $1.2 billion). To date, the company has realized 80% of total expected restructuring charges and 63% of total estimated cash spending for its restructuring program. On the plus side, management increased its expected annual savings by $50 million (to $500 million). We think Aon’s efforts to reduce its cost base have gone well, and this supports our Exemplary stewardship rating.