Aon (AON): A Bull Case Thesis

We came across a bullish thesis on Aon (AON) on ValueInvestorsClub by krusty75. We like VIC as our preferred site because the ideas there are generally posted by aspiring analysts who tend to think out of the box. We find the ideas presented on the site well-researched and worthy of a serious look. Click here for the full article. Below we summarized the AON bullish thesis:

The London-headquartered Aon PLC is a multi-national Anglo-Irish professional service company that  a range of financial risk-mitigation products, including insurance, pension administration, and sells health-insurance plans. Its primary focus is on insurance brokerage though. AON has 50,000 employees across 50 countries.

As a high quality leading company, AON has a solid financial profile, which continues to improve. Highly recurrent revenues from annual insurance brokerage (two-thirds of total revenue) and fee-based compensation (one-third of total revenue) are non-cyclical. AON is not highly capital-intensive and therefore generates high free-cash-flow. Limited incremental costs have helped low-double-digit EBITDA growth. Margins are in the low-30s range.

WLTW acquisition is accretive

A year ago AON announced a $27 billion merger with Willis Tower Watson (WLTW) turning the pro forma new entity the largest insurance broker globally. Subject to regulatory approvals for the merger, WLTW’s industry-leading world class benefits and consulting business franchise will complete the missing piece of the AON pie. The analyst believes the combined entity can generate EPS of $23-24 in 2025. At 18x PE, AON could be valued around $430 by 2024-end, generating a 20% IRR.

Solid management

Since taking the reins in 2005 the CEO Greg Case has disposed of the non-core businesses, repurchased 32% of the outstanding shares, and more than doubled ROIC. With a shareholder return of 16% IRR during his tenure (20% IRR in the past decade) certainly makes Case an underrated CEO. His solid track record is expected to take the company to greater heights in the financial risk-mitigation products industry.

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