Interim Results
B.P. Marsh & Partners Plc, the specialist investor in financial services intermediary businesses, announces its unaudited Group interim results for the six months to 31 July 2018 (the “Period”).
The financial highlights for the Period are:
- Net Asset Value (“NAV”) at 31 July 2018 of £120.1m (31 July 2017: £88.8m)
- NAV per share of 333p (31 Jan 2018: 339p, adjusted NAV post July 2018 Placing: 321p)
- 6.7% increase in the equity value of the portfolio in the Period
- Increased final dividend of 4.76p per share for the year to 31 January 2018 declared and paid in July 2018
- 6.4% total shareholder return in the period
- Intended dividend of at least 4.76p per share for the current year ending 31 January 2019
- Dividend covered 7 times by uncommitted cash as at 15 October 2018
- £16.6m cash raised (after costs) in Placing and Open Offer completed in July 2018
- Cash and treasury funds balance of £15.4m, of which £15.1m uncommitted at 31 July 2018
- As at 15 October 2018 uncommitted cash of £12.7m available for investment
The portfolio highlights for the Period are:
- New investment in ATC Insurance Solutions PTY Limited
- LEBC Holdings Limited’s acquisition of Aspira Corporate Solutions Limited completed
- Nexus Underwriting Management Limited acquisitions of two specialist MGAs
Brian Marsh, B.P. Marsh Chairman, commented,
“The performance of our portfolio of eighteen investments has been pleasing during the Period with the majority of our investments delivering strong returns. We expect this to continue for the remainder of the year.”
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 2018.
Our NAV has increased to £120.1m from £88.8m as at 31 July 2017 including £16.6m raised from the Placing and Open Offer in July 2018. This represents a NAV per share of 333p (31 Jan 2018: 339p; adjusted NAV post July 2018 Placing: 321p). The Group’s NAV performance during the Period is in line with the 11.9% annual compound growth in the NAV excluding all new funds raised since inception. Our unaudited profit after tax in the Period was £6.3m, compared to £10.2m in the six months to 31 July 2017. The comparable profit after tax number at our Interim results in 2017 included a significant unrealised gain on equity investment (£5.7m) relating to the revision of the Company’s valuation methodology for LEBC Holdings to reflect LEBC Holdings’s strong growth during that period.
Following the Placing and Open Offer the Company is entering a new phase of development, with a strategic investor, PSC Insurance Group taking a 19.6% shareholding. We continue to preside over a diverse portfolio with several strong performers and a healthy current uncommitted cash balance of £12.7m for future investment in the existing portfolio as well as new opportunities.
The Board is pleased to note the increase in NAV of 4.7% (excluding the proceeds raised from the Placing and Open Offer) and the 6.7% increase in the equity value of the portfolio during the Period.
Delivering returns to our shareholders continues to drive all that we do and I am pleased to report a 6.4% total shareholder return for the Period. We have already noted our intention to pay a dividend of 4.76p for the year ending 31 January 2019, subject to ongoing review and approval by the Board and Shareholders.
We continue to strike a balance between providing a dividend yield to investors and using available funds to invest in opportunities to generate long-term capital growth. We continue to see a healthy flow of new investment opportunities, with 32 received in the interim period and one completed, namely ATC Insurance Solutions of Melbourne, Australia. We are known for being patient in our consideration of new investments and we maintain this measured approach.
From a wider perspective, we continue to watch global political developments, including the UK’s exit from the European Union, with the reassurance that the geographic spread of the portfolio provides sufficient diversification to minimise any consequential impact.
Business Update
Summary of Developments in the Portfolio
New Investments
Investment in ATC Insurance Solutions (PTY) Limited (“ATC”)
On 10 July 2018 the Group announced an investment into the Australian based company ATC, taking a 20% equity stake for a total cash consideration of AUD $5.1m (£2.8m).
ATC is a Managing General Agency (“MGA”) which provides insurance underwriting services to a wide array of clients across a number of sectors, including Accident & Health, Construction & Engineering, Plant & Equipment and Sports Liability.
Chief Executive Officer, Chris Anderson and Director, Shane Sheppard established ATC as a Lloyd’s Coverholder in 2009. ATC is headquartered in Melbourne, with offices in Sydney and Brisbane, employing approximately 30 people.
For the year ended 30 June 2018 ATC reported Gross Written Premium of AUD $61m (2017: AUD $47m). The budget for the year ending 30 June 2019 demonstrates substantial year on year growth for ATC, with expected Gross Written Premium of circa AUD $76m.
Portfolio news
The Group’s portfolio businesses have continued to develop as anticipated during the Period. Specific instances or developments are noted below:
UK
LEBC Group Limited (“LEBC”)
LEBC announced strong half-year results for the six-month period to 31 March 2018, with revenue growth of 20% from £8.5m last year to £10.2m. Trading profit grew by 100% from £1.2m to £2.4m.
LEBC strengthened its senior management team in October 2018, with Derek Miles being appointed Managing Director of the corporate and private client division, supported by David Lloyd as head of private clients and Todd Rowlands leading the corporate proposition. Derek Miles was formerly Managing Director of Aspira, acquired by LEBC in December 2017, with formal completion occurring in February 2018. Three new senior management hires will also join the business.
In September 2018 LEBC was appointed as corporate pension partner for the Recruitment and Employment Confederation (the “REC”). The REC represents businesses through its corporate membership and individuals through the Institute of Recruitment Professionals. It has a partnership agreement with the Department for Work & Pensions to help get people into work.
LEBC has also stated that it is considering options for a potential shareholder liquidity event, alongside strategies to further accelerate growth.
Nexus Underwriting Management Limited (“Nexus”)
Nexus announced that it had completed the acquisitions of Huntington Underwriting Limited (“Huntington”) on 6 September 2018 and Altitude Risk Partners LLP (“Altitude”) on 7 September 2018.
Altitude is a specialist aviation MGA based in London, acquired by Nexus as an asset purchase from Castel Underwriting Agencies. Altitude has become a trading division of Nexus Underwriting Limited. Altitude underwrites a portfolio of seven lines of aerospace insurance across 130 territories and for the year ending 31 December 2018 is forecasting Gross Written Premium Income in excess of US$80m.
Huntington is a structured solutions MGA based in Malaysia’s Labuan International Business and Financial Centre. Huntington offers tailored, non-traditional (re)insurance programmes that manage the volatility in groups of risks, over several years, incorporating aggregate limits of liability and rewarding underwriting profitability.
As a result of these two transactions, the Nexus Group estimates that, for the year ending 31 December 2018, the business will write total Gross Written Premium of £275m across 14 specialty classes of business and generate annualised EBITDA of £13.8m. Nexus continues its M&A growth strategy, targeting three acquisitions per annum and has completed 12 acquisitions in total.
EC3 Brokers Limited (“EC3”)
Since the Group’s investment in December 2017, EC3 has continued to perform broadly in line with expectations.
Management continues to review a number of opportune personnel and team hires and M&A activity in order to deliver further growth.
CBC UK Limited (“CBC”)
On 2 July 2018 CBC completed the 100% acquisition of PBS Insurance Limited (“PBS”). PBS is a general insurance broker based in Jersey. As part of the transaction, Si Aziz, the Managing Director of PBS, subscribed for a shareholding in Paladin Holdings Limited, CBC’s parent company, in which B.P. Marsh has a c. 45% shareholding.
The transaction is an important development for CBC, being its first acquisition since the investment by B.P. Marsh in February 2017 and expanding the business into a new territory, with the resulting opportunities this should bring.
CBC’s audited accounts for the financial year ended 31 December 2017, the first year following the Management Buy-Out backed by the Group, report revenue of £5.4m and profit before tax of £0.7m (2016: £nil).
On 18 April 2018 the Group completed the purchase of an additional 10% stake in Paladin Holdings Limited (“Paladin”), CBC’s parent company, for £400,000 from a founding shareholder. It has been agreed between the Group and Paladin Management that these shares will be kept available for repurchase by Paladin at a fixed option price most likely to be utilised as part of a non-dilutive Management Incentive Scheme at any point in the next 12 months.
CBC is actively seeking individuals or teams that would complement the existing business, to further its growth ambitions.
Walsingham Motor Insurance Limited (“Walsingham”)
Walsingham, the London-based fleet MGA, continued its positive growth, reporting a 20% increase in revenues from £2.2m to £2.6m, and an increase in profit before tax from £0.1m to £0.5m in the year to 30 September 2017.
Garry Watson, Walsingham’s CEO, stated “The company continues to make excellent progress as we build on relationships with brokers, emphasising the benefits of using A rated paper.”
Europe
Summa Insurance Brokerage, S.L. (“Summa”)
The Group continues to work with Summa’s Management team to develop the business in a market which remains competitive, with rates continuing to soften.
Notwithstanding this, Summa remains in a strong position to take advantage of the fragmented insurance intermediary market in Spain and to assess all opportunities as and when they materialise.
Canada
Stewart Specialty Risk Underwriting Ltd (“SSRU”)
The Group’s investment in Canada, SSRU, an MGA which commenced writing business in April 2017, has performed well since launch and has reported strong year on year growth to date.
Australia
ATC Insurance Solutions (PTY) Limited, Sterling Insurance (PTY) Limited (“Sterling”) & MB Prestige Holdings (PTY) Limited (“MB Group”)
The Group’s three investments in Australia are all performing in line with or above the Group’s expectations at the current time.
Since the Group’s investment in 2012, MB Group has continued to show strong growth year on year with 2017 being MB’s best year from a performance standpoint to date.
Sterling, in which the Group has held an investment since 2013, also reported a positive financial year to June 2018, exceeding its EBITDA budget by c. 42%.
Dividend
A final dividend of 4.76p per share was declared and paid in July 2018.
It is the Board’s intention to maintain a dividend of at least 4.76p per share for the current year ending 31 January 2019, subject to ongoing review and approval by the Board and the shareholders.
Share Buy-Back
The Group announced a change to its Share Buy-Back Policy on 11 October 2018, which states that Buy-Backs can be undertaken when the discount to NAV of the Group’s share price exceeds 15% (previously 20%). The change was agreed by the Board in recognition of the reduction made in the share price discount to NAV over the preceding six months.
The Group’s Share Buy-Back Committee meets periodically to decide if Buy-Back transactions should be undertaken, when the discount to Net Asset Value of the Group’s share price exceeds 15%. The suitability of the 15% threshold is regularly monitored by the Board. The Buy Backs are intended as a stabilising mechanism and have been particularly useful during periods of market instability.
During the period of six months to 31 July 2018 the Group undertook no Buy-Back transactions from the Market as the discount never breached the 20% threshold.
Business Strategy
The Group invests amounts of up to £5m in the first round of funding and takes minority equity positions in financial services intermediaries, normally acquiring between 20% and 40% of an investee company’s total equity. During the holding period, additional investment can lead to the Group having a majority holding, as is the case currently in LEBC and Summa. In these circumstances, day to day business operation remains with management, with the Group providing input, advice and assistance, as with all of its portfolio businesses.
The Group is comfortable with taking a long-term investment horizon with an average holding period post-float of 6.2 years, with our current portfolio being held on average for approximately 3.5 years. As ever, we do not invest in companies that are exposed to underwriting insolvency risk.
The Group requires its investee companies to adopt minority shareholder protections and appoint a director to its board.
Since 1990 the Group has generated an average NAV annual compound growth rate of 11.9% (excluding the £10.1m proceeds raised on flotation and £16.6m proceeds raised as part of the Placing & Open Offer completed in July 2018). 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 a current uncommitted cash balance of £12.7m available for new investment opportunities and for developing the existing portfolio.
Outlook and New Business Opportunities
During the six-month period the Group has seen a strong flow of new investment opportunities, both in the UK and internationally. Discussions are ongoing on a number of these.
During the Period the Group reviewed 32 opportunities, of which 41% were insurance intermediaries, 9% insuretech, 19% wealth management, 22% fintech and 9% fell outside the Group’s investment criteria. By way of comparison, during the interim period to 31 July 2017 the Group reviewed 38 new opportunities.
Brian Marsh OBE, Chairman
16 October 2018
Recent Comments