Morningstar | Marsh & McLennan Ends 2018 on a Strong Note
Marsh & McLennan delivered a strong fourth quarter, though the company’s operations tend to be a bit lumpy, and we see nothing in the numbers that alters our long-term view. We will maintain our $82 fair value estimate and narrow moat rating.Excluding currency effects, acquisitions, and an accounting change, overall revenue increased 5% year over year in the quarter and 4% for the year. Growth remains somewhat weighted toward the brokerage side, which was up 6% in the quarter. We think this side of the business continues to see a slight uplift from improving insurance pricing, and a large dose of catastrophe losses this year could help maintain this trend in 2019. Consulting came in a bit weaker, with only 3% in the quarter, with management noting that some parts of this segment were negatively affected by market volatility.
Adjusted operating margins improved to 20.4% compared with 18.6% last year. We continue to believe Marsh & McLennan can improve margins over time, although the pace this quarter is unlikely to be maintained.
On the call, management noted the progress the company is making on its $5.6 billion acquisition of Jardine Lloyd Thompson. While Marsh & McLennan has been very acquisitive over the years, the JLT deal is magnitudes larger than the small, bolt-on deals Marsh & McLennan typically pursues. We like the strategic fit, and that the company is expanding its brokerage operations, which we view as the heart of its narrow moat. However, we think the deal deserves close scrutiny given its size, and we think the integration could have significant impact on overall results. Marsh & McLennan expect to close the deal in the spring.
Marsh & McLennan Companies is a holding company. Through its subsidiaries, the company provides clients advice and solutions in risk, strategy and people. The company provides analysis, advice and transactional capabilities to clients. The company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services; and Consulting, which includes health, wealth and career services and products, and other management, economic and brand consulting services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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