Matt @ Meritum

New post today in insurance brokers: "Which horse to pick" - combines our takes on Cycle + AI risk with an overlay of management quality, M&A capabilities and broader business quality (excuse the AI-assisted graph). $AJG $RYAN $BRO $AON $MRSH $WTW - link in bio & below.

@aerockrose Do binary search for 3 rounds, then always assume he would think adversarially and go to margins of probabiliyy space (i.e. no 57/58). If you still havent hit by last free guess, stop playing. He never stipulated you have to finish the game.

Steve Ballmer reveals the interview test Microsoft used to separate problem-solvers from gamblers: "I'm thinking of a number between 1 and 100. First guess, I give you $5. Then $4, $3, $2, $1. After that, you pay me." "There are far more numbers on which you lose than win."

@gonzostocks Thank you. Being published wednesday.

@MeritumInvest Looking forward to Part 4

We published part 3 of our insurance broker writeup on the stack today. Cycle risk in focus, for both admitted + E&S. $AJG $BRO $RYAN $WTW $AON $MRSH We go through recent pricing data on renewals, E&S market dynamics, casualty vs property and how the earnings outlook is hit.

Today we released our 2nd of four articles on insurance brokers ($AJG $BRO $WTW $AON $MRSH $RYAN) -- focused on AI-risk. Steel-man is that brokers live on information asymmetry and LLMs collapse this - but we have 4-6 reasons to believe this won't be so.

@ToffCap $RELX --> Cheap and growth inflection ahead on relevance of data assets + increase in digital fraud. $AJG --> Will grow EPS +50% next 3-4 years, and trades 15x NTM P/E. $CDW --> Bombed out after todays okay earnings. Peak depression on mediocre results.

~20% in cash right now (which is the average fund manager equivalent of 50%), so plenty to deploy. What do you suggest I take a look at?

$CDW - open Q - "ugh, why do I own this shit? Christine is continually unable to manage costs" - down 20% - "fuck, can't sell it this cheaply" Huge overreaction, but pretty natural since no natural ownership... no growth for compounderbros, not cheap enough for value-guys.

Meltdown in insurance brokers exemplified by $BRO NTM P/E relative to $SPY P/E over the last 20 years:

1Y ago to today on NTM P/E: $BRO 26x --> 12,6x (5Y mean = 23x) $AJG 28x --> 15x (5Y mean = 24x) $WTW 18x --> 13x (5Y mean = 17x) $AON 20x --> 16x (5Y mean = 20x) $MRSH 23x --> 16x (5Y mean = 22x) So $BRO went from "top tier" to $WTW-level + AJG rerated from premium->normal

Today we released part 1 of a primer on insurance distribution - including $AJG $AON $MRSH $BRO $RYAN $WTW. Covers market layers (admitted / E&S), reasons for intermediation, recent sell-off, and a few more things. pt 2 = AI, pt 3 = soft market risk. See link below.

Read our latest piece on $HEM.st -- a Swedish $FICO in disguise. Over last 5 years EPS is up +630% due to aggressive price increases, but the stock is down 25% over competition fears and crazy starting multiples. Management is executing very well on increasing their moat.

@fcfyplusg IMO risks on click-to-cancel and AI-automated savings are worth considering, especially given their debt-fuelled buyback model (meritum.substack.com/p/memo-planet-…)

$plnt is pretty interesting here imo. People were out of their mind paying 40x for this last year but it is a good biz model and has scale. Tough to see mult compression at 20x

Good spot!

$PLNT

We cover Planet Fitness on our substack in todays memo ($PLNT). Strong unit economics, but impending churn risk from easier cancellations & debt-funded buybacks makes the equity more fragile than one would expect from just looking at the core business model. Read more below