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Artisan Partners, a high value-added investment management firm, published its ‘Artisan International Value Fund’ fourth quarter 2021 investor letter – a copy of which can be downloaded here. A return of 4.38% was recorded by its Investor Class: ARTKX, 4.44% by its Advisor Class: APDKX, and 4.45% by its Institutional Class: APHKX for the fourth quarter of 2021, all outperforming the MSCI EAFE Index that delivered a 2.69% return and the MSCI All Country World ex USA Index that gained 1.82% for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Artisan International Value Fund, in its Q4 2021 investor letter, mentioned Willis Towers Watson Public Limited Company (NASDAQ: WTW) and discussed its stance on the firm. Willis Towers Watson Public Limited Company is a London, United Kingdom-based risk management, insurance brokerage, and advisory company with a $27.5 billion market capitalization. WTW delivered a -4.93% return since the beginning of the year, while its 12-month returns are down by -1.78%. The stock closed at $225.79 per share on February 16, 2022.
Here is what Artisan International Value Fund has to say about Willis Towers Watson Public Limited Company in its Q4 2021 investor letter:
"During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business."
Our calculations show that Willis Towers Watson Public Limited Company (NASDAQ: WTW) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. WTW was in 75 hedge fund portfolios at the end of the third quarter of 2021, compared to 70 funds in the previous quarter. Willis Towers Watson Public Limited Company (NASDAQ: WTW) delivered a -1.70% return in the past 3 months.
In January 2022, we also shared another hedge fund’s views on WTW in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.