Willis Towers (WTW) Banks on Segmental Growth Amid Cost Woes
Willis Towers Watson Public Limited Company WTW is well-poised for growth, driven by increasing healthcare premiums, improved software sales and advisory work, strategic buyouts and effective capital deployment.
The Health, Wealth & Career segment is expected to gain from higher demand for products and advisory work, new client appointments and growing healthcare premiums. Increased consulting work, strong client demand for talent and compensation products and employee engagement offerings are also likely to add to the upside.
The Corporate Risk and Broking segment is expected to gain from double-digit growth across global lines of business, notably in Aerospace, Natural Resources and FINEX, improved client retention as well as strong contributions from both construction and M&A solutions. Increased software sales and advisory work should continue to drive the Insurance Consulting and Technology business.
Willis Towers’ growth strategy focuses on core opportunities with the highest growth and returns. The broker innovated and developed its offerings in markets and boosted its abilities in faster-growth markets. Strategic buyouts add to the upside apart from expanding its geographical footprint, increasing capabilities and strengthening its portfolio.
The company has been improving its liquidity while maintaining a solid balance sheet. WTW has sufficient cash reserves to meet its short-term debt obligations. It expects approximately 12% free cash flow margin for 2023. Looking beyond 2023, Willis Towers expects free cash flow margin to increase due to improved cash conversion in TRANZACT business and the abatement of transformation-related spend. This expansion in free cash flow margin on top of expected organic revenue growth should drive strong long-term growth in free cash flow.
Solid balance sheet and steady cash flow are expected to help the company engage in capital deployment for buybacks, dividend payouts, debt repayments, acquisitions and investments that drive and support growth. The company remains committed to enhancing its shareholders value. Its dividend witnessed an eight-year CAGR (2016-2023) of nearly 7.2%. As of Jun 30, 2023, approximately $889 million remained on the current repurchase authority.
WTW remains focused on deploying excess capital and cash flow into share repurchases. With a solid financial position, it intends to continue to reward its shareholders, technology and new business opportunities and pursue opportunistic mergers and acquisitions.
Willis Towers' expenses have been rising over the last several quarters, resulting in the contraction of margins. Such escalating expenses are driven by higher salaries and benefits, other operating expenses, and transaction and transformation costs. The company must manage its expense prudently, else margin could erode.
Other Industry Players
Other players in the brokerage insurance industry include Brown & Brown, Inc. BRO, Marsh & McLennan Companies, Inc. MMC and Arthur J. Gallagher & Co. AJG.
Brown & Brown’s earnings surpassed estimates in three of the last four quarters and missed in one, the average being 3.98%.
Brown and Brown’s commissions and fees should continue to benefit from increasing new business, strong retention and continued rate increases for most lines of coverage. This, in turn, should drive the top line. The insurance broker intends to make consistent investments in boosting organic growth and margin expansion.
Marsh & McLennan’s earnings surpassed estimates in each of the last four quarters, the average being 3.44%.
The top line of Marsh & McLennan is aided by strong performances of the Risk and Insurance Services and Consulting segments. Higher renewal rates and growth exposure coupled with increased insurance and reinsurance rates drive the Risk and Insurance Services segment, while the Consulting unit benefits on the back of higher underlying growth in career and health.
Arthur J. Gallagher’s earnings surpassed estimates in each of the last four quarters, the average being 2.20%.
AJG is the largest property/casualty third-party claims administrator and fourth-largest insurance broker globally based on revenues. A sustained solid operational performance at its Brokerage and Risk Management segments should continue to drive its top line.
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Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
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Willis Towers Watson Public Limited Company (WTW) : Free Stock Analysis Report
