Interim Results to 31st July 2019
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 2019 (the “Period”).
The financial highlights for the Period are:
- Net Asset Value (“NAV”) at 31 July 2019 of £130.0m (31 July 2018 restated*: £120.0m; 31 January 2019 restated*: £126.2m)
- NAV per share of 361p(31 July 2018: 333p; 31 January 2019: 350p)
- 4.0% increase in the equity value of the portfolio in the Period
- Profit after tax of £5.6m
- Final dividend of 4.76p per share for the year to 31 January 2019 declared and paid in July 2019
- Cash balance of £1.4m as at 31 July 2019
- Loan facility of £3.0m available to use for investment
The key developments for the Period are:
- LEBC Holdings Limited valuation impacted by withdrawal from Defined Benefit transfer market. Management actions are underway
- XPT Group LLC, based in New York City, completed a fourth acquisition in the Period and, post Period-end, successfully raised $40.0m in aggregate in funding and acquired its fifth business
- Nexus Underwriting Management Limited secured an additional £16.0m in new loan facilities and completed the acquisitions of a specialist Trade Credit Broker and a London-based Financial and Professional Lines Managing General Agency
- New investment in Ag Guard PTY Limited of Sydney, Australia
Brian Marsh, B.P. Marsh Chairman, commented,
“B.P. Marsh has continued its long track record of delivering NAV growth from its diverse portfolio of investments, despite specific challenges. As a leading specialist investor in global financial services intermediaries and with 50% of our investment portfolio revenues emanating from outside of the UK, the outlook for the rest of the financial year is positive.”
Analyst Briefing
An analyst presentation, hosted by the Company, will be held on Tuesday 15 October 2019 at 10:00 a.m. at the offices of B.P. Marsh & Partners Plc, 4 Matthew Parker Street, SW1H 9NP.
Please contact Adam Lloyd at Newgate Communications on 020 3655 6880 or [email protected] if you wish to attend.
Note: This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
* Please note that these Interim results reflect the adoption of IFRS 16: Leases, which has had the impact of increasing the Group’s assets by £1.4m and increasing the Group’s liabilities by £1.5m through the recognition of a right-of-use asset and an associated lease liability in relation to the Group’s operating lease on its office premises. There has been negligible overall impact on the Group’s Net Asset Value, however the prior period comparatives have had to be restated accordingly.
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 2019.
On 2 September 2019, LEBC Group Limited voluntarily ceased the provision of Defined Benefit pension transfer advice pursuant to a market-wide review by the FCA. As a consequence of this, the Group has reduced the valuation of its holding in LEBC to £23.9m. However due to strong performance elsewhere within the portfolio, the Group is still aiming to conclude the year in a satisfactory position in terms of Net Asset Value. Our Net Asset Value as at 31 July 2019 was £130.0m or 361p per share, up 3% over the Period, notwithstanding the revaluation of LEBC.
During the Period, our partners in New York City, XPT, acquired Klein & Costa Insurance Services, a Managing General Agency and surplus lines broker located in California. XPT continues to have a promising pipeline of new investment opportunities, and we look forward to supporting its growth.
Nexus has continued with its successful acquisition strategy over the Period. In April 2019, it acquired Credit & Business Finance Limited, a specialist trade credit broker, and Capital Risks MGA Limited, a Warranty and Indemnity Managing General Agency. Nexus is now the leading independent UK trade credit broker. Most recently, in July 2019, Nexus acquired Plus Risk Limited, a London based Financial and Professional Lines Managing General Agency.
We were very pleased to complete a new acquisition over the Period. In July 2019, the Group subscribed for a 36% equity stake in Ag Guard Pty Limited (“Ag Guard”), which provides insurance solutions for the Australian agriculture sector, with insurance capacity provided by Munich Re.
The Group’s Australian investments continue to perform well, with ATC being a star performer, achieving significant EBITDA growth.
Walsingham has seen strong growth throughout the Period, with its results exceeding expectations.
The Group has experienced a healthy flow of new investment opportunities, with 42 received over the Period, compared to 32 received over the period to 31 July 2018. We continue to look at a number of domestic and international opportunities.
Currently, 50% of our investee companies’ revenue emanates from the UK, and 50% emanates from overseas.
Since incorporation, we have achieved an average annual compound growth in Net Asset Value of 11.7%, excluding any new funds raised.
Cash Balance
At 31 July 2019 the Group’s cash balance was £1.4m. During the Period, the Group entered into a £3.0m loan facility, provided by Brian Marsh Enterprises Limited, a company in which the Chairman, Brian Marsh, is a director and sole shareholder.
The loan facility provides the Group with further investment funds at an interest rate of the higher of either 4% or the UK 1-month LIBOR plus 3.25%, which are available to be drawn down until July 2020.
The Board considers that these are commercially advantageous terms, compared to other avenues of funding available.
Business Update
Summary of Developments in the Portfolio
New Investments
Ag Guard PTY Limited (“Ag Guard”)
On 12 July 2019 the Group invested in Ag Guard, based in Sydney Australia.
The Group subscribed for a 36% equity stake in Agri Services Company PTY Limited, which in turn acquired 100% of Ag Guard, for an initial cash consideration of AU$1.47m (c.£823,000). Further consideration of up to AU$1.13m (c.£628,000) may become payable, subject to performance.
Founders Alex Cohn (Managing Director), Martin Birch (Technical Director) and Ben Ko (Finance & Operations Director) have considerable experience in the provision of general insurance services in the Australian rural sector.
It is expected that the Group’s investment in Ag Guard, with the backing of a strong and experienced management team, will enable Ag Guard to become a serious market player over the next five years.
Portfolio news
UK
LEBC Group Limited (“LEBC”)
The Group notes its recent announcement regarding its investee company LEBC Holdings Limited released on 2 September 2019, in which it holds a 59.3% shareholding. LEBC Holdings Limited is the parent company of LEBC Group Limited, the UK IFA business.
Pursuant to the FCA’s market-wide review of the defined benefit (“DB”) transfer market, LEBC agreed to voluntarily cease the provision of DB pension transfer advice and projects, with effect from 2 September 2019.
Advice in the DB transfer market represents c.20% of LEBC’s total revenue in its current year. As such, the cessation of the provision of advice in this area has impacted LEBC as can be seen by the Group’s reduction in valuation of its equity of LEBC to £23.9m. However, LEBC, excluding DB transfer business, is still expected to produce annual revenue of c. £19.0m alongside an acceptable underlying profit position.
In line with its successful long-term investment strategy, the Group will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders. LEBC has implemented a significant restructuring and is working on a number of initiatives, some of which have already been implemented, including its bionic advice offering. The Group will work closely with LEBC’s management team to return LEBC to the position it was in before the withdrawal from the DB market, and have recently assisted in the recruitment of a new Chairman to the holding company Board.
Since the Company invested in LEBC in April 2007, the current valuation represents a 1.9x money multiple.
Nexus Underwriting Management Limited (“Nexus”)
In April 2019 the Group provided Nexus with a £2m revolving credit facility, as part of Nexus’ wider debt fundraising exercise in order to undertake M&A activity, bringing the total loan funding from the Company to £6.0m.
In addition to the facility from the Company, Nexus secured an additional £14.0m loan facility from funds managed by HPS Investment Partners, LLC (“HPS”), a leading global investment firm.
The funding provided by both B.P. Marsh and HPS has resulted in Nexus securing a total of £46.0m of loan funding, including the £30.0m of loan funding secured from both B.P. Marsh and HPS in July 2017.
Nexus is forecasting an adjusted EBITDA of c.£20m over the next 12 months, which would represent a compound annual increase in EBITDA of 45% since B.P. Marsh’s investment in August 2014.
During the Period, Nexus completed 3 acquisitions; Credit & Business Finance Limited (“CBF”), a specialist trade credit broker, Capital Risks MGA Limited (“Capital Risks”), a Warranty and Indemnity MGA, and Plus Risk Limited (“PBL”), a Financial and Professional Lines MGA.
Following the acquisition of CBF, Nexus became the leading independent UK trade credit broker, fulfilling one of its strategic goals as well as uniting the two biggest producers of ‘new to market’ business.
As part of the acquisitions, key management from the new acquisitions became shareholders in Nexus. The new acquisitions have increased Nexus’ forecast revenue by £2.83m and EBITDA by £1.39m. The Group recognises the recent growth in Nexus, which has been reflected in the Company’s valuation for its holding in Nexus increasing from £30.12m to £40.3m.
Nexus were pleased to announce the appointment of Andrew Moss, as non-executive Chairman. Andrew spent five years as Group CEO of Aviva Plc, and prior to this he held senior positions within Lloyd’s of London. He was most recently Chairman of Parker Fitzgerald, a London Based management consultancy firm, where he helped steer their recent acquisition by Accenture to its successful outcome.
The Company welcomed this appointment pursuant to Nexus’ avowed goal of achieving £20m of annualized EBITDA by the 2020 financial year, which will well position it as the pre-eminent London Market specialty MGA and strategically manoeuvre Nexus to review its next stage of development.
CBC UK Limited (“CBC”)
CBC, the London-based Lloyd’s broking business has increased its EBITDA by 40% in 2018, and is on target for increasing at the same rate in 2019.
CBC continues to strengthen its product offering with strategic hires and has recently hired an experienced Financial Products team. During the Period, the Group provided a £0.5m loan to support CBC in these endeavours.
The Fiducia MGA Company Limited (“Fiducia”)
In November 2016, the Group invested in Fiducia, a UK Marine Cargo Underwriting Agency, established by CEO Gerry Sheehy, based in Leeds.
Fiducia is a registered Lloyd’s Coverholder which specialises in the provision of insurance solutions across a number of Marine risks including Cargo, Transit Liability, Engineering and Terrorism Insurance.
During the Period, the Group invested £0.12m in Fiducia, being its pro-rata share of a £0.35m fundraising, with the remainder being provided by its CEO and founder, Gerry Sheehy.
Since Fiducia commenced trading, it has grown from a start-up position to producing in excess of estimated £10m forecast Net Written Premium in the year ending 31 December 2019, across its specialist lines of business.
EC3 Brokers Limited (“EC3”)
In December 2017, the Group invested in EC3, an independent specialist Lloyd’s broker and reinsurance broker.
Since investment, EC3 is expected to grow its top line revenue from c. £9m to a budgeted target of approaching £14m in the year to 31December 2019, whilst also maintaining a good underlying profit margin.
Over the same period, B.P. Marsh has worked with EC3 to augment its management function, and further develop its product offering to deliver both top and bottom-line growth.
Walsingham Motor Insurance Limited (“Walsingham”)
Walsingham, the London-based motor fleet MGA, continued its strong progress in 2018 reporting £19.8m in premium and generating EBITDA for the year of £0.6m. 2019 has seen further steady growth, reporting £21.5m in premium in 10 months’ trading with EBITDA expected to be c.60% ahead of 2018.
USA
XPT Group LLC (“XPT”)
The Group invested into XPT, the U.S. based specialty lines insurance distribution company, in June 2017.
In July 2019, XPT acquired Klein & Costa Insurance Services (“Klein & Costa”), an MGA and surplus lines broker located in Santa Ana, California.
Established in 2001, Klein & Costa provides broking services in the areas of Professional Liability and Speciality Lines, and as an MGA it represents three carriers with broad delegated underwriting authority.
Following the acquisition, Klein & Costa became part of Western Security Surplus Insurance Brokers (“WSSIB”), XPT’s wholesaler and MGA based in Texas and California, and began trading under the WSSIB name. This acquisition provided WSSIB with entry into a new location and introductions to Klein & Costa’s retail producers.
Since XPT commenced trading, it has grown from start-up to $165.0m in Gross Written Premium and is approaching $3.9m of adjusted EBITDA in its current financial year ending 31 December 2019.
Following the Period-end, XPT successfully secured $40m, in aggregate, of funding from Madison Capital Funding LLC (“Madison Capital”). As part of the transaction, Madison Capital took an equity interest in XPT Group LLC.
XPT has secured loan funding of $18.0m to refinance its current debt facility, and an additional $22.0m to support future growth. The financing with Madison Capital provides XPT with an opportunity to enter the next phase of its development and continue to seek strategic acquisitions in the North American insurance market.
As part of the fund raising, Madison Capital invested $2.0m and took an equity holding in XPT which values XPT at an enterprise value of $54.0m. This is approximately 10% greater than the Group’s 31 July 2019 valuation.
In tandem with the fundraising, XPT completed the acquisition of Sierra Specialty Insurance Services, Inc (“Sierra”). Sierra is an MGA and wholesale broker based in Fresno, California, and specialises in the provision of insurance to independent retail agents. Sierra represents XPT’s fifth acquisition of an established business.
Australia
ATC Insurance Solutions (PTY) Limited
Sterling Insurance (PTY) Limited
MB Prestige Holdings (PTY) Limited
Ag Guard (PTY) Limited
B.P. Marsh’s existing investments in Australia continue to perform well in a challenging insurance market, with premium income and profitability increasing across the board.
This is in response to a more positive insurance market internationally, and it also underlines the intrinsic quality of these companies and their management teams.
Additionally, the Group was pleased to note that all of the Company’s Australian MGAs successfully renewed their underwriting capacity support with Lloyd’s and the international insurance markets.
ATC Insurance Solutions (PTY) Limited (“ATC”) saw strong growth throughout the Period, reporting a significant increase of Gross Written Premium from AUD 61.0m in 2018 to AUD 84.0m in 2019.
The Company’s newest investment, Ag Guard, is a start-up which will no doubt face initial challenges, however we believe that the management team we have backed, with our investment support and underwriting support from Munich Re, has a strong growth horizon looking to the future.
Canada
Stewart Specialty Risk Underwriting Ltd (“SSRU”)
SSRU, the Toronto-based provider of specialty insurance products to a wide array of clients in the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors, commenced operations in February 2017.
Since the Group’s investment, SSRU has grown its Gross Written Premium from nil to a forecast position of over CA$9.0m in the year ending 31 December 2019, and achieving a profit and dividend yield.
Europe
Summa Insurance Brokerage, S.L. (“Summa”)
Summa is a regional consolidator of insurance brokers with 16 branches across Spain.
Whilst the Spanish insurance market continues to be a challenging place in which to operate, Summa continues to deliver c. €45.0m of annual premium and an annual adjusted EBITDA of over €1.2m.
The Group is also pleased to note that Summa has recently achieved Lloyd’s Coverholder status, which will bolster its product offering going forward.
Dividend
In July 2019 the Group paid a dividend of £1.7m to shareholders, equating to a dividend per share of 4.76p. The Board continues to strike a balance between investing cash into new opportunities for long-term capital growth and providing shareholders with a yield. This was the final dividend from an agreed three-year distribution following the successful realisation of Besso in February 2017. The Board is committed to paying further dividends funded by the proceeds of future portfolio realisations.
Share Buy-Backs
The Group has a share buy-back policy, as announced on 17 July 2019, that enables it to buy back shares when the Company’s share price is more than 15% below the Company’s most recently published Net Asset Value, within the permitted constraints of the Market Abuse Regulation.
The Board remains of the view that the authority to undertake low volume buy-backs of shares, when regulatory restrictions allow, is an important stabilising mechanism in times of market or share price volatility. During the Period, the buy-backs were conducted with the backdrop of market turbulence and the Board believes that these transactions had a stabilising effect on the Company’s share price.
During the six-month period to 31 July 2019 a number of buy-backs were undertaken, amounting to 51,416 shares, at an average price of £2.81 per share, which are being held in Treasury.
Directorate Changes
On 23 August 2019, the Group announced that Camilla Kenyon would be resigning her position as Executive Director, with effect from 31 August 2019.
Millie had worked with the Company since 2006. The Board is grateful for her contribution as an Executive Director since 2011.
As part of Millie’s departure from the Group, an internal restructuring process was undertaken with her role being divided amongst the existing Management Team. The Investor Relations function will sit with the Chairman, Managing Director and Company Secretary, and New Business responsibilities will be assumed by the Investment Department.
On 2n October 2019, the Group announced that Campbell Scoones, aged 72, resigned as a Non-Executive Director of the Company. Campbell also resigned from his role on the Remuneration Committee. The Nominations Committee will be considering candidates for Campbell’s replacement.
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 makes long-term investments with an average holding period post-float of 6.4 years, with our current portfolio being held on average for approximately 4.3 years. As ever, we do not invest in companies that accept Insurance Underwriting risk.
The Group requires its investee companies to adopt minority shareholder protections and to appoint a nominee director to its board.
Since 1990 the Group has generated an average NAV annual compound growth rate of 11.7% (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.
Outlook and New Business Opportunities
In addition to making the investment in Ag Guard during the Period to 31 July 2019, the Group continues to look at a number of MGAs and Insurance Brokers both domestically and internationally, alongside several interesting opportunities outside the insurance space.
36% of enquiries received by the Company emanated internationally, and 64% of enquires received by the Company were domestic.
The Group has produced a satisfactory overall performance in the Period. The Group’s strategy is to generate long-term value and the Board is confident in the Group’s ability to do so, notwithstanding short-term market uncertainties.
Brian Marsh OBE, Chairman
14 October 2019
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