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Jardine Lloyd Thompson Group plc Posted By : admin
Posted On : Saturday, January 03, 2015
Company Name : Jardine Lloyd Thompson Group plc Investment Range : Long
Ticker : LON:JLT M.Cap.Range : Mid-cap
Country : UK Stock Price : 902.50
Description :        

Business Description

Jardine Lloyd Thompson Group plc is a holding company. The Company and its subsidiary are engaged in risk management advice, insurance and reinsurance broking, underwriting services and the provision of employee benefit services.

The Company operates in three segments: Risk & Insurance, Employee Benefits and Head Office & Other operations. The Risk & Insurance segment consists of JLT’s global specialist, wholesale, reinsurance broking, personal lines and small and medium enterprise (SME) activities. The Employee Benefits segment consists of pension administration, outsourcing and employee benefits consultancy, healthcare and wealth management activities. The Head Office & Other segment consists mainly of holding companies, central administration functions, and the Company's captive insurance companies. In July 2014, Jardine Lloyd Thompson Group PLC, acquired a 26% stake in Independent Insurance Brokers Pvt Ltd.

Business Segment

  • 2013: Risk & Insurance Segment (74% of Revenues, 21% Adj. Opt. Margin) , Employee Benefits (26% of Revenues, 22% Adj. Opt. Margin)

Geographic Segment

  • 2013: UK (35%), Americas (25%), Australia & NZ (15%), Asia (15%), Europe (8%), others (2%)

Positives

  • Fourth largest Reinsurance broker in the world
  • JLT has the second largest international broker network in the world in over 135 countries
  • Work with over 90% of major private bank in Asia to deliver wealth management
  • Company has an online employee benefits software platform which over 0.5mm people use in UK
  • Strong FCF nature of business
  • Income tax set to decrease for UK companies from 24% in April 2013 to 23% in Dec 2013 to 21% in Dec 2014 to 20% in Dec 2015

Negatives

  • Price-led competition hurting market
  • Long period of low interest rate will keep insurance premium low
  • Income from interest earned during 2007 was approx. 22% of profit but now it is only 2% of profits due to low interest rate environment
  • Cyclical nature because of cyclical risk appetite of customer with economic condition
  • Company has a pension deficit which is a problem. They need to address this issue even though they are aware of it

Industry Overview    

  • Highly fragmented industry
  • JLT arrange Insurance for 27% of the global commercial airlines fleet
  • JLT arrange insurance for some 30% of worldwide mobile drilling rig fleet and largest reinsurance broker in Brazil with over 90% of market share in Oil & Gas Reinsurance market
  • In UK regulation has forced industry  has switched to client based payment model where Client is the center of everything and client decides the brokers commission

Competitors

Marsh & McLennan, Aon, Willis Group, Arthur J Gallagher, Wells Fargo, BB&T, Brown & Brown, Lockton, Hub International

Earnings Growth Driver

  • Higher economic activity results in increase in personal wealth & asset prices thus lead to increased insurance demand
  • Ageing population, Urbanization, Increasing insurance penetration in developing world, growing selected Niche, International expansion
  • Cross selling across globe leveraging local knowledge for global clients

Mergers & Acquisitions

  • Significant number of M&A each year. Most important one recently done what Tower Watson Re business in US for which they paid $250MM
  • Current Focus of M&A has been international expansion. Recently done in Malaysia, Hong Kong Taiwan, India, Brazil, Middle East etc

Valuation

The valuation seems to be cheap with around 8% fcf yield and at 3.5% dividend yield.

Summary

  • FCF Cash flow yield of about 8% with current year PE of 15x and dividend yield of 3.5% makes it cheap
  • Fourth largest insurance & reinsurance broker globally with strong operational experience. Market leader in some of the Niche Insurance & Reinsurance segments.
  • One of the best insurance broker network platform available with the company
  • Expanding internationally with M&A activities opens up a huge market
 
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