Investment Strategies / Falling Knives
No. of Recommendations: 3
Both BRO and AJG are both now top 5 Insurance brokers off 35-40% off their highs after large acquisitions. Commentary was positive and growth prospects appear solid for both. Both positions were just rec’d by an advising & research service. Interesting businesses. Any shrewd thoughts on these two brokers by dealraker or folks more informed than myself? Thanks
No. of Recommendations: 5
I really like the brokers as a business model. I like AJG a little better than BRO, but I own both. My employer uses BRO, and I was interested to learn our accounting folks value the "relationship" to the extent they don't really price shop; BRO has room to raise prices and we'll accept it as the cost of doing business.
No. of Recommendations: 1
nothing new to add for BRO, except simplistically :
- when BRO steadily makes small acqs and the sharprice only goes up, the market considers them "compounding royalty".
- when BRO attempts to move the (business) needle via its largest acq based on past experience\success, and the relatively soft insurance market is abandoned for speculative memes, BRO is seen as an obsolete growth trap.
No. of Recommendations: 6
I've heard good things about AJG as a long term investment, but I don't know the firm well.
Why does the share count rise so much over the years? Typically over 5%/year in the last ~15 years. The usual interpretation is that management is too quick to "spend" equity, but is there an exception here? Continuous small acquisitions using equity, something defensible?
Looking at the last 13 figures for rolling-three-year share count growth, median share count growth figure is +5.7%/year, lowest +1.8%/year.
Jim
No. of Recommendations: 0
I didn't do a deep analysis but after some study, I opened a small position in AJG back in September as part of a strategy to diversify a bit away from Berkshire Hathaway. Looks like I was a bit early.
StevnFool
No. of Recommendations: 5
I think a lot of the newly issued shares have been used for acquisitions -- AJG has a bit of an empire building complex (though in fairness some of the middle market insurance brokers were tempting targets). About a year ago AJG issued a bunch of shares (when they were trading just under $300/share) for the AssuredPartners acquisition (~$13.5B). As a casual observer I haven't been particularly impressed thus far: it looks like they overpaid (though partly in overvalued AJG shares), overpromised on synergies (par for the course), and confused a lot of AP employees, but it's early days yet and may yet sort itself out.
