tnathan Posted December 6, 2022 Share Posted December 6, 2022 Does anyone have some good reading on the dynamics in the insurance brokerage industry? What differentiates these stocks? Over the past bunch of months we have seen relative underperformance from BRO vs. all the other major brokers. Why would this be? Link to comment Share on other sites More sharing options...
gfp Posted December 6, 2022 Share Posted December 6, 2022 Hopefully dealraker will chime in but I just wanted to say the thread title would probably make an excellent ETF. Link to comment Share on other sites More sharing options...
Spekulatius Posted December 6, 2022 Share Posted December 6, 2022 BRP belongs in this basket too. It's an aggressive rollup. Link to comment Share on other sites More sharing options...
CorpRaider Posted December 6, 2022 Share Posted December 6, 2022 $GSHD? Link to comment Share on other sites More sharing options...
dealraker Posted December 6, 2022 Share Posted December 6, 2022 1 hour ago, gfp said: Hopefully dealraker will chime in but I just wanted to say the thread title would probably make an excellent ETF. gfp I follow Wells Fargo on the brokers because they do a good job covering them in my view --- for a long time now. Their view for several years now is that AJ Gallagher is both likely the better perfoming business and stock. I'll try to gain access to some Wells (I just looked and couldn't find their last summary) stuff and pass it along. Brown, I think, bought some UK brokers and had nice revenue growth but expenses were far higher than expected and I think that's was the stock price problem. But again not certain but I think I read that at the time. I once was asked by my bro-in-law to "manage" some of his money. I just put 100% of it in Brown and Brown (it was Poe and Brown then) because the stock was selling at 12 times free cash flow and growing earnings at 15% a year. Oh my...wish those days would return! Wells follows: AJ Gallagher Aon Marsh McLennan Brown and Brown Willis Towers Watson BRP Ryan Specialty Goosehead I've owned Gallagher for 28 years and Aon, Marsh, Willis (the predecessor got me there), and Brown for 25 years. Just bought BRP when the price plummeted for some reason down around $15. Other than what Wells reports I know nothing about them. I know nothing about Goosehead except the stock price which is fascinating. For your humor BB&T, now Truist, has a insurance broker sub best known for paying dearly for acquisions. There are still many large private insurance brokers including the one Prem and Fairfax once owned 40% of called Hub International. I'll never forgive Prem for selling this business (being seriously silly saying this) as I'll bet its performance since he sold it (and I had to give up my shares) has easily been 18% annual returns. DAMN! But Hub was constantly selling for less than ten times earnings back then when Fairfax owned so much of it....all while growing 15% a year. The "old" days were fine wine. I'll look for the Wells stuff and post some things when I can find them. Link to comment Share on other sites More sharing options...
dealraker Posted December 7, 2022 Share Posted December 7, 2022 20 hours ago, gfp said: Hopefully dealraker will chime in but I just wanted to say the thread title would probably make an excellent ETF. I'll post the new Wells insurance broker updates when it becomes available as I can't find and access the last report. The thing that sort of stands out is that entities like Morninstar continuously rate all the insurance brokers as over-valued, significantly so. This is while Wells states otherwise. For decades now Wells has been correct. I'll update later. Link to comment Share on other sites More sharing options...
tnathan Posted December 7, 2022 Author Share Posted December 7, 2022 Thanks for the insight everyone...looking forward to the Wells update @dealraker. I did a bit more reading on Goosehead and it does seem like they have a very interesting / differentiated model with a potential for 10+ years of strong growth runway. What is the general bear thesis (apart from valuation)? Link to comment Share on other sites More sharing options...
dealraker Posted December 7, 2022 Share Posted December 7, 2022 1 hour ago, tnathan said: Thanks for the insight everyone...looking forward to the Wells update @dealraker. I did a bit more reading on Goosehead and it does seem like they have a very interesting / differentiated model with a potential for 10+ years of strong growth runway. What is the general bear thesis (apart from valuation)? tnathan I'm not aware of any thesis on Goosehead but I'll post any I see. I think Wells was covering them and will follow up when I can. Link to comment Share on other sites More sharing options...
Spekulatius Posted December 7, 2022 Share Posted December 7, 2022 There is a VIC writeup from 2019 when it traded at current prices. The stock is cheaper know since the business has been growing. it seems to me that GSHD is more like franchise business. https://www.valueinvestorsclub.com/idea/GOOSEHEAD_INSURANCE/2028354943 I don't own it, but it does look attractive to me. Link to comment Share on other sites More sharing options...
dealraker Posted December 7, 2022 Share Posted December 7, 2022 49 minutes ago, Spekulatius said: There is a VIC writeup from 2019 when it traded at current prices. The stock is cheaper know since the business has been growing. it seems to me that GSHD is more like franchise business. https://www.valueinvestorsclub.com/idea/GOOSEHEAD_INSURANCE/2028354943 I don't own it, but it does look attractive to me. Thanks Spek...I actually think I've read that presentation before. There's another odd player called Ryan Specialty, RYAN. As of yet I've not investigated that business. I have owned Erie Indemnity for some time now, many years. What a business model! Very different. ERIE. Valuation? I don't get there, but others obviously do. Link to comment Share on other sites More sharing options...
gfp Posted December 7, 2022 Share Posted December 7, 2022 I don't follow RYAN specialty, but noticed the CEO there, Mr. Ryan, definitely bought the dip recently - http://openinsider.com/search?q=ryan Link to comment Share on other sites More sharing options...
dealraker Posted December 7, 2022 Share Posted December 7, 2022 (edited) Here's a typical first page of a recent Wells report on AJG and they've raise the "target price" to $215. For the record...now for about 20 years I've thought Wells was crazy over-the-top on broker valuations. Turns out ole dealraker was the damn crazy one...didn't know what I've owned for nearly 30 years. Will it continue...LOL? Who the hell knows? Arthur J. Gallagher & Co. (AJG) AJG: Best Broker Outlook; Q3 EPS and Conference Call Roundup Our Call Summary: AJG reported Q3 EPS of $1.72 beating both our estimate of $1.63 and consensus of $1.66. The beat was driven by better results in Brokerage, beating us by $0.04 on lower expenses (the level of margin deterioration was in-line with expectations but AJG restates its prior year margins for FX), and Corporate beating by $0.04 due to a favorable tax item and FX remeasurement gain. FX offset results by $0.02, just below our $0.03. Our 2022, 2023, and 2024 EPS estimates are now $7.77, $9.05 and $10.45 (from $7.66, $9.00 and $10.40). Our new estimates primarily reflect the Q3 beat and higher organic revenue growth. Our price target is now $215 (from $212) based on a 23x multiple of our 2023 EPS estimate and $4.50 per share to its clean energy investments. The shares should get a lift from the quarter, reflective of the company raising its Brokerage outlook for 2023 (to 7-9% organic growth from the prior 6-9%). We reaffirm our Overweight rating. • Organic outlook better for 2023, with the Q3 in-line. In brokerage, AJG reported 7.8% organic growth, in-line with our estimate and the "pushing 8%" that AJG guided to at its September investor meetings. Given the weaker results at BRO, we expect the in-line organic quarter and higher forward guide will be well-received. AJG lost $465,000 of contingents from Hurricane Ian as compared to $19 million for BRO (BRO also expects to not see the $19 million of revenue in 2023). Most impressively, Gallagher is now looking for 7-9% organic growth in 2023 (up from its prior 6-9%) and agreed with us that if the market really hardens they could potentially see double-digit organic growth (about 80% of their Brokerage business is commission based). • Strong growth in all regions. Gallagher saw 9% growth in its U.S. retail business, 15% in the U.K., 9% in Australia/New Zealand and 13% in Canada up 13%, while Benefits was up around 3% (excluding timing), and wholesale was +9%. AJG is now looking for over 9% organic growth in Brokerage for the full year (unchanged from its prior outlook), with over 9% growth in the Q4 (unchanged from the previous guide). In Risk Management, AJG reported +12% organic, better than our 10.0% estimate and guidance for 10%. AJG expects Risk Management organic to be about 10% in Q4 and at least in the high-single digits in 2023. • Margins in line with expectations, with improvement in 2023. Within brokerage, AJG saw margins contract 120 bps, in line with its guide for 125 bps of contraction. Within reinsurance, revenue came in at $120 million, in-line with expectations and Gallagher said the business performing well and generated 8% organic growth in the quarter (above 7% in Q2 and in-line with the Q1). Risk Management EBITDAC margin was 18.2%, close to its 18-18.5% guide (which was impacted by a new client ramp-up) and Gallagher is looking for a 19% margin in 2023. Within Brokerage AJG said that at 6% organic they should see 50 basis points of margin expansion and pointed to the potential incremental margin from higher fiduciary investment income as coming on top of that. • Robust M&A pipeline. Gallagher has more than 50 term sheets with nearly $400 million of revenue, unchanged from its September investor meeting. Further, they reiterated that they think they will have more than $4 billion of cash to use for M&A through 2023 without issuing stock and did say that if deals do not materialize they could end up buying back their shares. Our sense is they will wait to see how the pipeline develops as higher interest rates could potentially cause PE interest in the group to wane. Equity Analyst(s) Elyse Greenspan, CFA Equity Analyst | Wells Fargo Securities, LLC Matthew Byrnes, CFA Associate Equity Analyst | Wells Fargo Securities, LLC Wesley Carmichael, CFA Associate Equity Analyst | Wells Fargo Securities, LLC Hristian Getsov Associate Equity Analyst | Wells Fargo Securities, LLC Edited December 7, 2022 by dealraker Link to comment Share on other sites More sharing options...
Dinar Posted December 7, 2022 Share Posted December 7, 2022 @dealraker, any chance that you could ask Wells Fargo analysts where they see numbers say a decade from now? Or forecasts of organic revenue growth for the next 5-10 years + what if any acquisitions? I know it is a tall ask, thank you. Link to comment Share on other sites More sharing options...
Spekulatius Posted December 8, 2022 Share Posted December 8, 2022 (edited) 7 hours ago, Spekulatius said: There is a VIC writeup from 2019 when it traded at current prices. The stock is cheaper know since the business has been growing. it seems to me that GSHD is more like franchise business. https://www.valueinvestorsclub.com/idea/GOOSEHEAD_INSURANCE/2028354943 I don't own it, but it does look attractive to me. Hmmm: https://valueinvestorsclub.com/idea/GOOSEHEAD_INSURANCE/2028354943#messages The 50:50 split for recurring business sounds egregious to me too, why would anyone agree to this as a franchisee? Edited December 8, 2022 by Spekulatius Link to comment Share on other sites More sharing options...
dealraker Posted December 8, 2022 Share Posted December 8, 2022 (edited) 59 minutes ago, Spekulatius said: Hmmm: https://valueinvestorsclub.com/idea/GOOSEHEAD_INSURANCE/2028354943#messages The 50:50 split for recurring business sounds egregious to me too, why would anyone agree to this as a franchisee? Wow! Not even close to anything I have come across before. Looks like a temporary business model geared to send money up the food chain. Edited December 8, 2022 by dealraker Link to comment Share on other sites More sharing options...
gfp Posted December 12, 2022 Share Posted December 12, 2022 (edited) Not sure where to post this, but some might find this second issue of industry magazine "E&S Insurer" to have some interesting commentary. As dealraker pointed out, it reads a bit like a tabloid, much like its sister publication "insurance insider." It is also primarily written out of the UK I believe. But there are interviews and renewal scuttlebutt, etc. Only the first two issues are free, it will be paywalled after this one - https://pdf.static.prod.wbm.infomaker.io/NByENF43Hs4HyauotoWgX6hsNGI.pdf (link is a PDF file) Edited December 12, 2022 by gfp Link to comment Share on other sites More sharing options...
Xerxes Posted December 12, 2022 Share Posted December 12, 2022 On 12/6/2022 at 2:27 PM, dealraker said: I once was asked by my bro-in-law to "manage" some of his money. I just put 100% of it in Brown and Brown (it was Poe and Brown then) because the stock was selling at 12 times free cash flow and growing earnings at 15% a year. that is hilarious!! Link to comment Share on other sites More sharing options...
Spekulatius Posted December 12, 2022 Share Posted December 12, 2022 On 12/7/2022 at 10:04 PM, dealraker said: Wow! Not even close to anything I have come across before. Looks like a temporary business model geared to send money up the food chain. To be sure, I am not sure which way GSHD goes - MLM marketing scheme or legit insurance franchise / operator or something in between. 1) GSHD has seen strong growth in recurring revenues recently 2) I don't understand how a 50/50 split works for a franchise. it seems very high to me, comparable what a real estate agent can get when he works with a franchise like Coldwell bankers etc. However in that case the real estate will do the complete back office, pay of the office space, some of the branding advertisement etc. that's way more than what GSHD seems to be doing for their franchisees (some call center and some software / connections with insurance cos ). I could be wrong, I have neither experience in insurance nor with real estate agencies. However, I have talked with my real estate agent about how this works (she ended up going alone later). Link to comment Share on other sites More sharing options...
dealraker Posted December 12, 2022 Share Posted December 12, 2022 2 hours ago, gfp said: Not sure where to post this, but some might find this second issue of industry magazine "E&S Insurer" to have some interesting commentary. As dealraker pointed out, it reads a bit like a tabloid, much like its sister publication "insurance insider." It is also primarily written out of the UK I believe. But there are interviews and renewal scuttlebutt, etc. Only the first two issues are free, it will be paywalled after this one - https://pdf.static.prod.wbm.infomaker.io/NByENF43Hs4HyauotoWgX6hsNGI.pdf (link is a PDF file) While it does read like a tabloid it is an excellent introduction to parts of the insurance business. I enjoyed reading it. Again, something that many don't accept and I get crap all the time about criticisms: You don't have to be giddy uphoric about everything management's do nor do you have to be "all in" or "all out" on something written...like this. It has some really good stuff in it- makes things simple which is too simple yet still helpful. Link to comment Share on other sites More sharing options...
dealraker Posted December 12, 2022 Share Posted December 12, 2022 (edited) On 12/12/2022 at 10:56 AM, Xerxes said: that is hilarious!! It was a small amount of his money. I'd forgotten about it actually until a month or so ago Brown fell 11% in one day. He calls me and says, "Damn boy....you screwed me...." We laughed...he has about 20 times his investment. Like Prem's Hub back in the old days, particularly in the mid to late 1990's and even in the Elliott Spitzer days (he attacked the brokers' contingent commissions), the brokers were growing 15% and often selling for less than 10 times free cash flow. Except for my bro-in-law I never succeeded in persuading anyone in the publicly traded stocks investment arena to buy an insurance broker. Edited December 13, 2022 by dealraker Link to comment Share on other sites More sharing options...
Dinar Posted December 13, 2022 Share Posted December 13, 2022 @dealraker, any view on wr berkeley? thank you Link to comment Share on other sites More sharing options...
dealraker Posted December 13, 2022 Share Posted December 13, 2022 40 minutes ago, Dinar said: @dealraker, any view on wr berkeley? thank you Dinar I really don't follow WR Berkeley any longer but still own the stock. Link to comment Share on other sites More sharing options...
dealraker Posted December 16, 2022 Share Posted December 16, 2022 Some Wells from today as promised (as I cut and paste pieces relevant): Insurance Brokers: the year of the reinsurance broker. We believe a big differentiator for insurance brokers will be their presence in the reinsurance market as that is where we expect the strongest rate increases next year. As reinsurance rates rise at 1/1, this should lead to outsized growth at reinsurance brokers, of which AON, AJG and MMC are the market leaders. RYAN could also benefit from its presence in the E&S market as property rates harden post Hurricane Ian. Link to comment Share on other sites More sharing options...
dealraker Posted December 16, 2022 Share Posted December 16, 2022 Further Insurance Brokers — Business Mix Should Be A Focal Point In 2023 Business mix will matter more than ever. In our view, the focus on insurance brokers will remain organic growth and margin expansion, and we feel that key determinants in 2023 will be business mix, especially to the high-margin, high-growth reinsurance brokerage segment, as well as companies' ability to benefit from higher levels of fiduciary income. Our top picks in the sector are AJG and MMC. • AJG has guided to 2023 Brokerage organic growth in the 7-9% range (versus the above 9% they are expecting this year), which we expect should be bolstered by the company's presence in the reinsurance brokerage business (AJG has typically guided conservatively and been able to beat the guidance that they have laid out). AJG should be able to bolster its organic growth with continued bolt-on acquisitions and grow its EBITDA. The company should also be able to continue to finance acquisitions as they have ~$4 billion of capacity for transactions. • MMC should also continue to post mid-to-high single-digit organic growth aided by their reinsurance brokerage business (MMC is the second-largest reinsurance broker). MMC should also receive the largest benefit from fiduciary income among our coverage companies. As such, we expect the company to expand margins at a pace that is in-line or above peers in 2023. Additionally, MMC has ample capital flexibility, and we expect the company to return a sizable amount to shareholders in 2023 (we are forecasting capital return at ~4% of its market cap next year). • RYAN should post double-digit organic revenue growth while maintaining margins above 30%. While the company screens high on an EV/EBITDA basis, we believe that is reflective of the high organic growth and margins it is seeing. While the company is facing headwinds from lines such as public company D&O, it stands to benefit from exposure to the property market, which is multiples of its D&O book in size. The company also has ample cash on hand to complete strategic acquisitions. The stock pulled back meaningfully after Q3 earnings due to a guide down in Q4 organic as well as management commentary around potential headwinds, but we feel this presents a buying opportunity, given the company's strong underlying fundamentals and its ability to participate in a hardening specialty lines market in 2023. Link to comment Share on other sites More sharing options...
dealraker Posted December 16, 2022 Share Posted December 16, 2022 Stock Rank Order Exhibit 3 - Insurance Coverage: Stock Rank Order Summary AJG Insurance Broker 7 5 Down Will see a meaningful expansion in geographic exposure from its acquisition of Willis Re, seeing strong organic revenue growth, and continuing to find good bolt-on acquisitions. MMC Insurance Broker 9 6 Down In 2023 MMC should continue to benefit from the new employees they have hired, which should be additive to its organic revenue growth. RYAN Insurance Broker 10 14 Up Upgraded to Overweight from Equal Weight. RYAN should show double-digit organic revenue growth, with margins coming in around 30%, and revenue being aided by a small amount of incremental M&A. BRP Insurance Broker 14 13 Down BRP is unique among the publically traded brokers by giving investor access to a smaller cap company that also happens to be outgrowing its insurance broker peers. AON Insurance Broker 16 17 Up AON has a large account and global presence, and is seeing strong organic revenue growth, and continues to expand its margins. The company has also said that they could add to their leverage as they look to continue to return capital to shareholders. BRO Insurance Broker 17 18 Up Given its lack of an expense management program, BRO could see margins contract more versus peers. BRO is also bringing on larger international deals, which should carry integration risk and greater exposure to FX. WTW Insurance Broker 18 19 Up WTW's organic revenue growth is expected to continue to lag peers at least through the remainder of the years. We think the concerns surrounding its organic growth trajectory, outweigh the low valuation of the shares. Link to comment Share on other sites More sharing options...
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