2. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Percentage of Baupost Group’s 13F portfolio: 3.12%
Value of Baupost Group’s Stake: $290.77 million
Number of Hedge Fund Holders: 49
Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a London-based financial services company which operates through its segments: Health, Wealth & Career, and Risk & Broking.
At the end of May, Willis Towers Watson Public Limited Company (NASDAQ:WTW) approved a $1 billion increase in its share buyback program, which will be in addition to the nearly $1.3 billion remaining on the current open-ended repurchase authority. On May 19, Raymond James analyst C. Gregory Peters removed Willis Towers Watson Public Limited Company (NASDAQ:WTW) from the firm’s “Analyst Current Favorites” list, but maintained a ‘Strong Buy’ rating on the shares with a $270 price target.
For the first quarter, Willis Towers Watson Public Limited Company (NASDAQ:WTW) posted a revenue of $2.16 billion, underperforming estimates by $74.21 million. However, EPS of $2.66 came in above Street forecasts by $0.16.
According to regulatory filings for the first quarter, Seth Klarman owned a $290.8 million stake in Willis Towers Watson Public Limited Company (NASDAQ:WTW) consisting of 1.23 million shares. This took up 3.12% of the fund’s overall portfolio. The firm’s largest Q1 shareholder was First Eagle Investment Management with a $1.13 billion stake.
Out of all the hedge funds tracked by Insider Monkey, 49 reported ownership of stakes in Willis Towers Watson Public Limited Company (NASDAQ:WTW) at the end of the first quarter with a collective price tag of $2.18 billion. This is down from 66 hedge funds a quarter earlier.
Here is what Artisan Partners, an investment management firm, had to say about the prospects and valuation of Willis Towers Watson Public Limited Company (NASDAQ:WTW) in its Q4 2021 investor letter:
“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial
position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”
