WLTW: Event-Driven Opportunity in Attractive, Oligopolistic Industry

Daniel Gladiš of Vltava Fund presented his thesis on UK-based insurance broker Willis Towers Watson (US: WLTW) at European Investing Summit 2021.

Thesis summary:

Willis Towers Watson offers an event-driven investment in the attractive insurance brokerage industry, which is dominated by a few large players.

The event catalyst has already occurred, as a plan to merge with AON was terminated on July 26, 2021. This led to the unwinding of merger arbitrage positions, resulting in selling pressure on WLTW shares. After the deal fell apart due to lack of regulatory approval, WLTW received a breakup fee and has been repositioning the business under a new CEO.

The company has sold its Willis Re business for up to $4 billion and has formulated financial targets through 2024. For the fiscal year 2024, WLTW is targeting revenue of $10+ billion, adjusted operating margin of 24-25%, and adjusted EPS of $18-21. The company has embarked on a share repurchase that may amount to as much as $4 billion through FY2022.

WLTW shares trade at a discount to the peer group, which includes AON (US: AON), Arthur J. Gallagher & Co. (US: AJG), Brown & Brown (US: BRO), and Marsh & McLennan (US: MMC). Based on 2022 estimates, AON, AJG, BRO, MMC, and WLTW trade at P/E ratios of 23x, 29x, 27x, 24x, and 17x, respectively.

Assuming EPS of $20 in FY2024 and a price of $240 per share, WLTW’s P/E ratio would come down to 12x (if the stock price remains flat).

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About the instructor:

Daniel Gladiš, based in the Czech Republic, has amassed a market-beating track record since starting VLTAVA Fund in 2004. VLTAVA Fund is a value-oriented, research-driven investment fund focused on investing in good companies run by quality management. Previously, Daniel was Director and Chairman of the Board of Directors of ABN AMRO Asset Management (Czech) from 1999–2004. He was also Director and founder of Atlantik finanční trhy, a.s., a member of the Prague Stock Exchange. Daniel is a graduate of VUT Brno and has authored the best-selling books Naučte se investovat (Learn to Invest) and Akciové investice (Stock Investments).

Read Daniel’s recent article on central banks.