We are upgrading our recommendation on
Willis Group Holdings plc
) to Neutral from Underperform on the back of solid first quarter
results that benefited from improved top line coupled with lower
Counting on the positives, organic growth in commissions and
fees, which forms the major component of Willis' revenue, continues
to post positive numbers. Growth of 2% in the first quarter was
driven by strong new business growth and improving premium rates
along with other favorable market factors.
Also, the company pursues strategic acquisition, which continues
to aid its performances. Willis Italy acquired Broking Italia SRL
to augment its presence in Italy. With solid retention levels, new
business growth and strategic acquisitions, we expect the company's
top line to increase further.
In order to reduce operating expenses Willis undertook a cost
saving initiative in 2008. The operational review was completed in
2011 and cost the company $180 million. Willis expects cost savings
of $135 million in 2012, up from approximately $115 million to $125
million expected earlier.
Willis Group has consistently tried to enhance its shareholders
value via dividend increase as well as share buyback. The board has
authorized a 3.8% hike in its dividend besides approving a share
buyback authorization worth $100 million. With a solid financial
position, we expect the company to continue paying back
shareholders, thereby retaining investor confidence in the
On the flip side, The Loan Protector business continues to
experience a dip in revenues, adversely impacting the North America
segment. The company expects weak performance at the Loan Protector
business to continue in 2012.
The company has been experiencing decline in investment income
over the past few years, a trend that continued through 2011 and
into the first quarter of 2012, due to lower average interest
rates. We expect investment income to remain under pressure in the
near term as interest rates continue to witness sharp declines
across the globe. Nevertheless, Willis Group's forward hedging
program to some extent offset the effect of low interest rates.
The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the stock over
the near term.
Headquartered in London, United Kingdom, Willis Group Holdings
plc and its subsidiaries provide a broad range of insurance
brokerage, reinsurance and risk management consulting services to
its worldwide clients, both directly and through its associates.
Its major competitors are
Arthur J Gallagher & Co.
Marsh & McLennan Companies Inc.
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