Morningstar | Marsh & McLennan Steady in 1Q
Marsh & McLennan’s first-quarter results largely held steady with the company’s recent performance. We continue to see the company as something of a tollbooth business that is capable of modest growth and solid profitability, and its performance supports that view. We will maintain our $87 fair value estimate and narrow moat rating.Excluding acquisitions and currency effects, revenue was up 4% year over year with that growth tilted toward the brokerage business, which was up 5% on the same basis. Management noted that insurance pricing is firming, which will probably remain a modest tailwind to the business through 2019. Consulting underlying revenue was up only 2% year over year, with a relatively poor showing from Mercer partially offset by good growth at Oliver Wyman. The company recently installed a new CEO at Mercer and is restructuring the business in the hope of improving growth, but we think expectations should be modest.
Marsh & McLennan closed the $5.6 billion acquisition of Jardine Lloyd Thompson Group in the quarter. Jardine’s brokerage business increases Marsh & McLennan’s specialty exposure and bulks out its presence in the United Kingdom, Australia, and emerging markets. This should boost growth a bit, and we like that the company is doubling down on brokerage operations, which we view as the heart of its moat. But we would point out that while acquisitions are par for the course for Marsh & McLennan, it typically pursues small bolt-on deals, and the size of this deal is somewhat unprecedented for the company. As such, we think investors should be mindful of integration risk in the near term.
In the quarter, adjusted operating margins improved to 26.2% from 24.1% last year, in part due to the restructuring efforts at Mercer. We think management deserves credit for its ability to improve margins over time and think the company has further opportunities over time on this front, but we expect long-term margin improvement to be much more modest.
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.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.