Morningstar | Marsh & McLennan’s Growth Accelerates a Bit in 3Q
Overall, we think Marsh & McLennan’s third-quarter results were fairly impressive. Revenue excluding acquisitions, currency effects, and an accounting change was up 5% year over year, which marks a slight acceleration from recent results. We will maintain our $82 fair value estimate and narrow-moat rating.The company’s brokerage operations saw 5% underlying revenue growth. Coming into the year, we believed an improving insurance pricing environment following the flurry of natural catastrophes would be a modest tailwind this year, and that appears to be playing out. So far, this year’s catastrophe losses look somewhat elevated compared with historical averages, but much less than what the industry saw in 2017. As a result, this tailwind will likely prove somewhat fleeting.
The consulting side also posted a good 5% growth rate, led by 11% growth at Oliver Wyman. However, this might be the result of the inherent lumpiness of the consulting business, as management expects a decline in the fourth quarter.
Excluding one-time items and the accounting change, operating margins declined slightly to 16.5% from 16.8% last year, with improvement on the brokerage side more than offset by a decline in consulting. We attribute the modest decline mainly to a tough comparison last year. Longer term, we believe the business is capable of generating modest margin improvement over time.
While Marsh & McLennan is still progressing through approvals, the $5.6 billion acquisition of Jardine Lloyd Thompson Group remains on track. Marsh & McLennan is certainly no stranger to acquisitions (and announced an additional small acquisition during the quarter), but the size of this deal is somewhat unprecedented. Still, we like that the company is bulking up its brokerage operations, which we view as the heart of its narrow moat, and the price looks reasonable factoring in expected cost synergies.
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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