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Cooper Investors Bought Arthur J Gallagher (AJG) Stock

Cooper Investors, an independently-owned investment firm, recently published its first-quarter Global Equities Fund (Hedged) commentary – a copy of which can be downloaded here. During the first quarter of 2020, the Cooper Investors Global Equities Fund (Hedged) returned -18.98%, while the benchmark MSCI ACWI was down 19.97%.

In the said letter, Cooper Investors highlighted a few stocks and Arthur J. Gallagher & Co. (NYSE:AJG) is one of them. AJG offers insurance and risk management services. Year-to-date, AJG stock lost 17.3% and on April 30th it had a closing price of $78.50. Its market cap is of $15.0 billion. Here is what Cooper Investors said:

“AJG is leading insurance broker focused on niche verticals with middle market clients in areas like education, healthcare or aviation. We have long been attracted to the insurance brokers:

  • Sustainable mid-single digit growth driven by an increasingly complex and underinsured world
  • Sticky customer relationships exhibited by 93-94% retention rates (flat revenues through the GFC)
  • Attractive margin profile with major listed brokers all generating >25% EBITDA margins
  • No insurance underwriting risk
  • We remain invested in AON, a larger broker focusing on Fortune 500 companies.

Pat Gallagher was appointed CEO of AJG in 1995, being the third generation Gallagher to hold this role. Under Pat’s stewardship AJG has created significant value for shareholders through pursuing attractive organic opportunities across middle market insurance and via deployment of capital into acquiring independent insurance brokers and bringing them into the AJG family. By sharing enhanced tools and expertise these acquired businesses can provide significantly better service to clients. There is a long runway to deploy capital in this manner with ~30,000 brokers in the US alone.

The investment proposition is further enhanced by AJG’s unique tax credits generated via clean coal assets which the company established in the 1990s. These assets generate credits which will shield a significant portion of group cash taxes for the next decade, generating more Free Cash Flow for AJG to deploy into acquisitions or return to shareholders (~2.4% dividend yield).”

In Q4 2019, the number of bullish hedge fund positions on AJG stock increased by about 15% from the previous quarter (see the chart here).

Disclosure: None. This article is originally published at Insider Monkey.

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