Aon PLC Valuation – February 2018 $AON

Company Profile (obtained from Marketwatch): Aon Plc provides insurance brokerage, risk management and human capital consulting services. The company operates through two segments: Risk Solutions and HR Solutions. The Risk Solutions segment acts as an advisor and insurance and reinsurance broker, helping clients manage their risks via consultation, as well as negotiation and placement of insurance risk with insurance carriers through its global distribution network. The HR Solutions segment partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance by designing, implementing, communicating and administering a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. The company’s clients include corporations and businesses, insurance companies, professional organizations, independent agents and brokers, governments, and other entities. It also serves individuals through personal lines, affinity groups, and certain specialty operations. The company’s products and services are divided into two transactional product lines: retail brokerage and reinsurance brokerage. The retail brokerage product line encompasses retail brokerage services, affinity products, managing general underwriting, placement, and captive management services; and reinsurance brokerage product line offers sophisticated advisory services in program design and claim recoveries that enhance the risk/return characteristics of insurance policy portfolios, improve capital utilization, and evaluate and mitigate catastrophic loss exposures worldwide. Aon was founded in 1979 and is headquartered in London, the United Kingdom.

AON Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AON – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $35,277,667,100 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.07 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 127.02% Pass
6. Moderate PEmg Ratio PEmg < 20 24.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.90 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.07 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.15 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $5.87
MG Growth Estimate 9.23%
MG Value $158.30
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $85.12
MG Value based on 0% Growth $49.90
Market Implied Growth Rate 7.88%
Current Price $142.46
% of Intrinsic Value 89.99%

Aon plc Class A Ordinary Shares (UK) does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.63 in 2014 to an estimated $5.87 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 7.88% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Aon plc Class A Ordinary Shares (UK) revealed the company was trading above its Graham Number of $56.99. The company pays a dividend of $1.41 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 24.27, which was above the industry average of 20.16. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.81.

Aon plc Class A Ordinary Shares (UK) scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.81
Graham Number $56.99
PEmg 24.27
Current Ratio 1.07
PB Ratio 7.90
Current Dividend $1.41
Dividend Yield 0.99%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $13,677,000,000
Total Current Liabilities $12,755,000,000
Long-Term Debt $5,667,000,000
Total Assets $26,088,000,000
Intangible Assets $10,091,000,000
Total Liabilities $21,505,000,000
Shares Outstanding (Diluted Average) 254,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.87
Dec2017 $4.70
Dec2016 $5.16
Dec2015 $4.88
Dec2014 $4.66
Dec2013 $3.53
Dec2012 $2.99
Dec2011 $2.87
Dec2010 $2.37
Dec2009 $2.57
Dec2008 $4.80
Dec2007 $2.69
Dec2006 $2.13
Dec2005 $2.17
Dec2004 $1.63
Dec2003 $1.97
Dec2002 $1.61
Dec2001 $0.53
Dec2000 $1.79
Dec1999 $1.33
Dec1998 $2.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.87
Dec2017 $4.78
Dec2016 $4.62
Dec2015 $4.17
Dec2014 $3.63
Dec2013 $3.04
Dec2012 $2.90
Dec2011 $2.92
Dec2010 $2.94
Dec2009 $3.10
Dec2008 $3.14
Dec2007 $2.25
Dec2006 $1.98
Dec2005 $1.80
Dec2004 $1.58
Dec2003 $1.52
Dec2002 $1.35

Recommended Reading:

Other ModernGraham posts about the company

Aon PLC Valuation – January 2016 Update $AON
32 Companies in the Spotlight This Week – 12/6/14
Aon PLC Annual Valuation – 2014 $AON

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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