The financial highlights for the Period are:
· Net Asset Value (“NAV”) up 4.3% to £73.8m
· NAV per share up to 253p (31 Jan 2016: 243p, 31 July 2015: 225p)
· 5.8% total shareholder return (including Dividend of 3.42p per share paid July 2016)
· Profit after tax up 19.5% to £4.0m (31 July 2015: £3.4m)
· Current uncommitted cash balance of £7.9m
· Dividend of 3.76p per share recommended for year to 31 January 2017
Chairman’s Statement
I am pleased to present the unaudited Consolidated Financial Statements of B.P. Marsh & Partners Plc for the six month period to 31 July 2016.
In the midst of various uncertainties, including the result of the EU Referendum and global economic concerns, the Company and its portfolio of investments continue to perform in line with our expectations. The results for the Period illustrate our continuing progress and development.
The six months have resulted in an increase of 8.7% in the Equity value of the Portfolio.
The Group has increased its NAV to £73.8m (253p per share), with an average annual compound NAV growth rate of 11.3% achieved since 1990.
During the Period we continued our geographic expansion, with the completion of a new investment in Asia Reinsurance Brokers, headquartered in Singapore and with five offices throughout the region.
Our South African investments, from small beginnings, are starting to grow and we were pleased to acquire an additional 22% in PLUM, the Johannesburg-based Managing General Agent (“MGA”) on 5 October 2016.
Also within the existing portfolio we purchased an additional 8% of the share capital of LEBC Holdings Limited (“LEBC”), taking our total holding to 43%. The Group considers LEBC to be a company at an exciting stage of development, in an increasingly active market.
Besso Insurance Group Limited (“Besso”) continues its strong performance and to build on its market position.
The Group has a healthy cash balance of £7.9m available to invest and is in advanced discussions on several new opportunities that fall within our heartland of interest in Financial Services. We continue to look at ways to expand geographically, whilst following our principle of doing so in territories with a robust regulatory environment and where we see good opportunities for development by offering a partnership to businesses that would benefit from an experienced London-based investor.
We have been taking steps in recent years to reduce the discount to Net Asset Value that we have historically traded at and it is gratifying to note this has now reduced to around 20% at the time of writing, having been as much as 45% in 2012.
The Board has continued to try to strike a balance between utilising cash to invest in its existing portfolio and new opportunities and providing investors with a modest but meaningful yield. Following the realisation of the Group’s remaining 1.6% stake in Hyperion and receipt of £7.3m cash in July, the Board recommended a dividend of 3.76p per share for the year ending 31 January 2017, with the aspiration to at least maintain this in the following two years.
Business Update
Summary of Developments in the Portfolio
New Investments
Investment in Asia Reinsurance Brokers Pte Limited (“ARB”)
On 21 April 2016 the Group acquired a 20% shareholding in ARB, the Singapore-headquartered independent specialist reinsurance and insurance risk solutions provider, for a total consideration of SGD $2.4m.
The Group may increase its shareholding in ARB to 25% for an additional cash consideration of up to SGD $0.5m. The consideration paid by the Group for such an additional shareholding would be dependent on the performance of ARB in its financial year ending 31 December 2017.
ARB was established in 2008, following a management buy-out of the business from AJ Gallagher, led by the CEO, Richard Austen. ARB specialises in the provision of long-term reinsurance and insurance solutions to a wide range of insurance and reinsurance companies throughout Asia and has offices across the region, including in Malaysia, the Philippines and Indonesia.
The Group considered this an opportunity to invest in a well-established and profitable business with an experienced and respected management team and strong growth potential. The investment will be used to build on ARB’s position in the Asian market and to assist them in their growth ambitions.
Increased Holdings
LEBC Holdings Limited (“LEBC”)
The Group purchased a further 8.03% stake in LEBC Holdings Limited (“LEBC”) for an aggregate consideration of approximately £1.91m in June 2016, increasing its shareholding to 42.63%.
B.P. Marsh first invested in LEBC, the independent financial advisory company, in April 2007, taking a 22.5% stake, increased by way of a follow-on investment to a 34.9% stake in January 2014. During the nine years of B.P. Marsh’s investment, LEBC has grown from revenues of £8.06m (for the year ending 31 May 2007) to revenues of £15.0m (for the year ending 30 September 2015) and extended its network of branches across the UK from 11 to 15.
LEBC is currently developing a “bionic” advice proposition combining technology with human involvement, which aims to enable advisers to work more efficiently in giving advice using intelligent systems for fact-finding and report writing.
Bastion Reinsurance Brokerage (PTY) Limited (“Bastion Re”)
Property and Liability Underwriting Managers (PTY) Limited (“PLUM”)
Bulwark Investment Holdings (PTY) Limited (“Bulwark”)
The Group originally invested in PLUM in July 2015 for an initial consideration of £0.3m. It was agreed that the total consideration paid would increase by a further £0.3m subject to PLUM achieving EBITDA of ZAR 8.3m (c. £0.43m) over the first year of the Group’s investment.
These targets were met by PLUM and a further consideration of £0.3m has been paid in line with the investment agreement.
On 5 October 2016, the Group took the opportunity to acquire an additional 22.5% in PLUM from an exiting shareholder, for cash consideration of £0.61m. This increases the Groups’ total shareholding in PLUM to 42.5% for a total cash acquisition price of £1.31m.
The Group’s other South African investments, Bastion Re and Bulwark, continue to gain significant traction within their market and are performing in line with the Group’s expectations.
Disposals
The Broucour Group Limited (“Broucour”)
On 22 April 2016 the Group sold its 49% stake in Broucour to the Founder and Managing Director Mr. Rupert Cattell for consideration of up to £0.34m, which equates to the Company’s most recent published valuation. The outstanding loan (£0.3m) will likewise be repaid in full.
Randall & Quilter Investment Holdings Limited (“R&Q”)
On 4 May 2016 the Group sold its 1.32% stake in R&Q to Brian Marsh Enterprises Limited for consideration of £1.02m, resulting in a realised gain for the Company of £0.25m, a 25% increase to the year-end valuation of £0.77m. The Board took the view that the realised funds would be better utilised in an opportunity to which the Group could add value. Brian Marsh Enterprises Limited is owned by Brian Marsh, Chairman and majority shareholder of the Company.
Portfolio news
Nexus Underwriting Management Limited (“Nexus”)
Nexus is one of the largest independent specialty MGAs in the London Market with a forecast Premium Income in excess of £110m for 2016, an increase from £56m in 2014 when the Company first invested.
Acquisition of Hong Kong-based marine MGA Beacon
On 5 July 2016 Nexus acquired 100% of the shareholding in the Hong Kong domiciled marine Managing General Agent, Beacon Underwriters Limited (“Beacon”), which marked its first overseas acquisition and the third acquisition within the last 12 months. The acquisition of Beacon augments Nexus’ footprint in Asia, subsequent to the opening of Nexus Underwriting Asia (HK) in 2015.
Beacon was established in 2009 as a Lloyd’s coverholder to write marine business for the Asian and Middle Eastern markets. Beacon’s Managing Director, Dr Ravi Schroff, has over 30 years of experience as an insurance underwriter.
Nexus EBA opens branch in Ireland
Nexus EBA, part of Nexus, announced on 13 July 2016 that it has established a branch in Ireland, headed up by Stephen Comerford, Senior Business Development Manager and Deputy Underwriter for Surety Insurance.
Besso Insurance Group Limited (“Besso”)
Besso, one of the top 20 independent Lloyd’s brokers, has continued to perform well in the current market place and has recently announced its results for the 2015 financial year.
Besso revenues have increased by 16% to £37.6m (£32.3m in 2014), with EBITDA increasing by 15% to £4.17m (£3.62m in 2014), in the 12 months to 31 December 2015.
Besso undertook a debt refinancing exercise with Clydesdale Bank during 2015, to support its continued growth strategy. A proportion of the funding from Clydesdale has been used to repay our longstanding Loan Notes, which has reduced Besso’s interest payments overall by 15%.
In regard to the 2016 financial year, Besso has seen strong results in the first six months, continuing the encouraging trend over 2015.
Pursuant to a previously agreed option arrangement, on 8 September 2016 Besso purchased and cancelled 6.57% of the Company’s shareholding in Besso for consideration of £1.58m. This buy-back accordingly reduced the Group’s Besso shareholding from 42.02% to 37.94%.
As announced on 26 July 2016, the Group confirms that the Board of Besso and its shareholders have engaged Canaccord Genuity to carry out a strategic review for Besso. This review is at a stage whereby discussions are underway with potentially interested parties with a view to sale of, or investment in Besso. B.P. Marsh has been an active party in these discussions. There can be no certainty that these discussions may lead to the Company disposing of its interest in Besso’s shares.
Summa Insurance Brokerage, S.L. (“Summa”)
Throughout the period, Summa’s agricultural division continues to grow strongly, however, continuous softening rates within the general insurance market has had an impact on the overall Group’s valuation. In addition Summa has continued to successfully refinance a number of its banking arrangements with Spanish banking institutions, placing Summa in a strong position to continue its growth, both organically and through M&A opportunities.
Meanwhile, forecasts for the Spanish economy show that growth in 2016 is likely to be above 2.6%, making it presently one of the fastest growing economies in the Euro Zone.
The Board continues to believe that Summa is well positioned in Spain’s stabilising market and looks forward to working with the management team to develop the business. Additionally, the Group continues to work with Summa to develop their interaction with the Lloyd’s and London Insurance Market.
Trireme Insurance Group Limited (“Trireme”)
U.S. Risk Insurance Group, Inc. (“U.S. Risk”), the Dallas-based leading international specialty lines underwriting manager and wholesale broker and the Group’s partner in the Trireme investment announced on 13 July 2016 that it had entered into a definitive agreement for a significant transaction and partnership with Kohlberg & Company, L.L.C. (“Kohlberg”), a leading private equity firm specialising in middle market investing.
Through its $1.6bn private equity fund, Kohlberg Investors VII, L.P., Kohlberg has made a significant equity investment in U.S. Risk and will reserve substantial additional equity capital to support growth initiatives. This will position U.S. Risk for accelerated growth and an enhanced value proposition for current and future customers and partners.
U.S. Risk holds 70% of the Trireme Group, alongside the Group’s 30%. Trireme is the holding company for Lloyd’s broker investments Oxford Insurance Brokers Limited and James Hampden International Insurance Brokers Limited, as well as the overseas Managing General Agencies Abraxas and Antarah, based in Zurich and Dubai respectively.
Hyperion Insurance Group Limited (“Hyperion”)
On 4 July 2016 the Group received £7.31m from the realisation of its final 1.6% stake in Hyperion.
Dividend
The Board has recommended a dividend of 3.76 pence per share (£1.1m) for the financial year ending 31 January 2017, in recognition of the steady growth and consolidation of the investment portfolio.
This represents an increase of 10% over the dividend of 3.42p per share (£1m) paid in respect of the financial year ended 31 January 2016.
The Board strikes a balance between utilising cash to invest in the existing portfolio and new opportunities with providing investors with a healthy but sustainable yield. It is the Board’s aspiration to maintain a dividend of at least 3.76p per share for the years ending 31 January 2018 and 31 January 2019, subject to ongoing review and approval by the Board and the Shareholders.
Share Buy-Back
The Group undertook a low volume share buy-back on 27 June 2016, when it purchased 5,726 ordinary shares of 10 pence each in the Company (“Ordinary Shares”) at a price of 153.78 pence per Ordinary Share. These shares are being held in Treasury.
The Board believes that these low volume buy-backs are a helpful stabilising mechanism during periods of market volatility and were particularly useful following the EU Referendum decision.
Business Strategy
The Group typically invests amounts of up to £3.5m and only takes minority equity positions in Financial Services intermediaries, normally acquiring between 15% and 45% of an investee company’s total equity. Based on our current portfolio, the average investment has been held for approximately 8 years.
The Group usually requires its investee companies to adopt certain minority shareholder protections and appoint a director to its board.
Since 1990 the Group has generated an average NAV annual compound growth rate of 11.3%. Its successful track record can be attributed to a number of factors that include a robust investment process, management’s considerable sector experience and a flexible approach to exit.
Cash Balance
The Group has an uncommitted cash balance of £7.9m available for new investment opportunities and for developing the existing portfolio.
Outlook and New Business Opportunities
The Group is in discussions with a number of potential investment opportunities, both in the UK and overseas. Overseas investments would fall within the Group’s strategy to focus on geographic areas where the Group sees sufficient opportunity for business development in partnership with a London-based investor, coupled with a suitably developed regulatory and compliance environment.
During the Period the Group reviewed 45 opportunities, of which 69% were insurance-related, 7% wealth management, 18% fintech and platforms and 7% other financial services opportunities (recruitment, consultancies, etc). By way of comparison, during the full year to 31 January 2016 the Group reviewed 71 new enquiries.
The current economic outlook presents a mixed picture and the Group is prepared for continuing turbulence as the implications of the EU Referendum decision, concerns about the health of European banks and the forthcoming American elections impact upon the global economy.
It remains the Group’s intention to continue to invest into the international financial services market, specifically in insurance intermediaries but more generally across the sector, a policy which historically has had little or no direct impact from the UK’s membership of the European Union. Due to the global nature of many of its investee companies, approximately 64% of the portfolio’s revenue stream originates from overseas, meaning that the Group is protected from sterling weakness. This, combined with the Group’s lack of external debt and its strong current and future cash balances, means that it is fully poised to pursue and capitalise upon its tried and trusted investment approach.
“We remain focused on our proven, long-term approach to investment as we enter the second half and look forward to updating shareholders at the full year results.”
Brian Marsh OBE, Chairman
17 October 2016
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
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