On Oct 21, 2014, we issued an updated research report on Willis Group Holdings Public Limited Company (WSH). We believe that the company’s acquisitions and capital deployment initiatives position it to generate long-term growth.
WillIs Group’s revenue growth has been compelling in the last reported quarter. Each segment delivered organic growth for the seventh consecutive quarter. The improvement was primarily attributable to new business wins and a favorable interest rate environment. Recent developments at the company that are expected to drive revenues further include the proposed acquisition of SurePoint Reinsurance and buyout of a range of Irish pension and financial advisory businesses from IFG Group plc. Additionally, WilliS Group is holding exclusive talks with Miller Insurance Services to create a London-based wholesale specialist broking firm, thereby expanding its reach.
Enhancing shareholders’ return through efficient capital deployment has been another area of focus for Willis Group. These capital deployments include enhanced share repurchases as well as dividend hikes. With a solid financial position, we expect the company to continue paying back shareholders, thereby retaining investors’ confidence and attracting new investors. In order to enhance financial flexibility, the company has issued debts amid the favorable rate environment.
On the flip side, Willis Group’s operating expenses have been on a rising trend over the last few years. The first half of 2014 experienced a 1.3% increase in expense. Higher expenses are also taking a toll on operating margins.
Moreover, the company has been witnessing a decline in investment income over the past few years. Although the same increased in the last reported quarter, we wait to see its sustainability in the low interest rate environment.
Earlier, Willis Group reported second-quarter earnings that missed the Zacks Consensus Estimate and decreased year over year due to higher expenses. Notably, this insurance broker delivered negative earnings surprises in all of the last four quarters with an average miss of 9.7%.
Investors interested in the insurance brokerage space may consider stocks like eHealth, Inc. (EHTH), Erie Indemnity Company (ERIE) and Validus Holdings, Ltd. (VR).
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