B.P. Marsh, the niche venture capital provider to early stage financial services businesses, is pleased to provide the market with an update on trading for the Group’s financial year ended 31 January 2017.
Highlights
Realisation of Besso investment
Follow-on investments in Nexus and LEBC
Investment in Asia Reinsurance Brokerage Pte, Singapore
Start-up MGA investments in UK (Fiducia) and Canada (SSRU)
Return of £7.3m Equity & £6.04m Loans in cash from Hyperion
Increase in upper limit for new investments to £5m
Dividend of 3.76p for the year as part of a 3 year programme
Increased opportunity pipeline
£4.4m net cash available
The year has been one of strong performance and important developments for the Group.
The Group will have significant cash to deploy going forward following the return from the Hyperion disposal and, subject to completion, the proceeds of the exit from Besso.
The portfolio businesses are performing well and the Group increased its positions in Nexus and LEBC during the year.
The Group continued its geographic expansion with new investments in Singapore and Canada and continues to see North America as an area of interest.
The business also streamlined the portfolio by disposing of non-core holdings in Randall & Quilter and Broucour.
The new opportunity pipeline remains strong and, in recognition of the expected cash inflow from Besso, the Board has agreed an increase in the upper limit for new investments from £3m to £5m in first round funding.
The Board will continue to strike a balance between rewarding shareholders by generating value through investing funds in opportunities that will deliver long-term capital growth and a sustainable ongoing dividend.
The Company’s share price has increased by c. 35% from 1 February 2016 to the current date, and there has been a narrowing in the discount to NAV at which the Company’s shares trade in the same period. The Board notes this improvement and intends to build on this performance in the coming year.
Investment Activity
Disposals
Conditional Disposal of Besso
The Group announced on 4 January 2017 that it had reached agreement to sell its entire 37.94% shareholding in Besso Insurance Group Limited (“Besso”) for cash, with completion subject to, inter alia, regulatory approval. This is expected to result in estimated proceeds to the Group of £20.6m net of transaction costs and pre-tax. Additionally, the Group’s outstanding loans with Besso will be fully repaid on completion. BGC Partners Inc. (“BGC”) has agreed to acquire 100% of Besso, with ongoing management and employees rolling over a proportion of their existing Besso shareholdings into BGC shares.
Since the Company’s announcement on 4 January 2017 the Besso transaction continues to progress to completion, and the Group expects to receive additional funds of approximately £18.37m (after transaction costs and tax). All of the above calculations are based on the August 2016 balance sheet, for illustrative purposes. The adjustments will be calculated on the basis of a completion balance sheet, and therefore these figures are subject to change.
B.P. Marsh’s investment in and exit from Besso demonstrates the success of its strategy of investing for the long-term and working with management teams to achieve a mutually desirable exit at the optimum time.
Disposals of Broucour and R&Q
On 22 April 2016, the Group sold its 49% stake in The Broucour Group Limited (“Broucour”). Additionally, on 4 May 2016, the Group sold its 1.32% stake in Randall & Quilter Investment Holdings (“R&Q”). These decisions were made as the Group believed that these investments were non-core holdings.
Follow-on Investments
Nexus Underwriting Management Limited (“Nexus”)
The Group acquired an additional 6.87% in Nexus, the independent specialty Managing General Agency (MGA) from two of the founding shareholders for a total consideration of £4m on 15 December 2016.
The Company made an initial investment in Nexus in August 2014, acquiring 5%, and since then has steadily built on this position with a number of follow on investments. The Group’s current shareholding in Nexus stands at 18.8%.
Since investment in August 2014, Nexus has more than doubled in size from a premium, commission and EBITDA standpoint.
LEBC
The Group acquired an additional 8.02% stake in LEBC Holdings Limited (“LEBC”) for £1.91m in June 2016, purchasing shares from legacy shareholders and increasing its stake to 42.68%. Additionally, in November 2016, the Group acquired a further 0.42% for £0.11m and the Group’s holding in LEBC now stands at 43.03%.
LEBC Group Ltd, the trading subsidiary, has finalised its 30 September 2016 year-end results declaring a turnover of £15.4m and a trading profit of £2.1m for the year.
New Investments
Asia Re
The Group subscribed for a 20% shareholding in Asia Reinsurance Brokers (Pte) Limited (“ARB”), the Singapore headquartered independent specialist reinsurance and insurance risk solutions provider, for a consideration of SGD 2.4m on 21 April 2016.
Fiducia
The Company announced its investment in The Fiducia MGA Company (“Fiducia”), a recently established UK Marine Cargo Underwriting Agency, on 22 November 2016, subscribing for a 25% cumulative preferred ordinary shareholding for total consideration of £0.08m. In addition, the Company has agreed to provide Fiducia with total loan funding of £1.75m, with £0.35m drawn down upon completion.
SSRU
The Group’s most recent investment, announced on 30 January 2017, was a subscription for a 30% Cumulative Preferred Ordinary shareholding in Stewart Specialty Risk Underwriting Limited (“SSRU”), a start-up Specialty Casualty Underwriting Agency, based in Toronto, Canada. The Company, alongside the nominal equity investment, has provided a loan facility of CAD $0.85m (c. £0.48m).
The investment represents the latest geographic expansion of B.P. Marsh’s investment portfolio, with the North American continent now represented once again alongside Australia, Singapore, South Africa, Europe and the UK.
Investment Strategy
The Board has approved an increase in the Group’s upper limit for new investments to £5m.
Having considered the Company’s cash resources following the return of funds from Hyperion and the anticipated inflow from the disposal of Besso, the Board has agreed the Company should widen its investment criteria to consider investments up to £5m in the first round, an increase from the current £3m. This would apply to investments in established businesses with a strong track record. The Group will continue to look at start-ups, investing on a thinly capitalised basis.
All other investment criteria remain the same:
To take minority positions in financial services intermediary businesses;
Investments being relationship-driven and long-term;
No set exit on investment; and
Average holding period is 5 years, however, the longest has been over 20 years.
Dividend
The Board has recommended a dividend of 3.76 pence per share (£1.1m) for the financial year ending 31 January 2017.
This represents an increase of 10% over the dividend of 3.42p per share (£1m) paid in respect of the prior year.
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. This is subject to ongoing review and approval by the Board and the Shareholders.
When considering a dividend, the Board will continue to strike a balance between rewarding shareholders by generating value through investing available funds in opportunities that will deliver long-term capital growth and providing a meaningful dividend.
Share Buy-Backs
The Board continues to pursue a strategy of undertaking low volume share buy-backs at times when the Group’s Share Price represents a significant discount to Net Asset Value. The Board considers that this is a useful stabilising mechanism during periods of market volatility.
As such, following the EU Referendum decision, the Group undertook a buyback of 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 held in Treasury.
New Business Opportunities and Outlook
The financial year closed with a total of 84 new opportunities presented to the Group during the year, in comparison with 71 in the previous year.
Having completed investment in two start-up MGAs and an established broker in Singapore during the year, the Group’s attention is concentrated on investment in established businesses in the UK and continuing focus on the North American continent. The investment in Canada, SSRU, represents the first step back into the North American continent, however, following the Group’s policy of expanding into territories where there is good opportunity for growth in partnership with a London-based investor and a suitably developed regulatory and compliance environment, North America continues to represent a logical opportunity base.
Cash Balance
The net cash available for investment after provision for tax and commitments currently stands at £4.4m before receipt of funds from the sale of Besso, which is expected to add additional funds of £18.37m net of transaction costs and tax.
Full year Results
The Group expects to report the results for the year to 31 January 2017 on Tuesday 6 June 2017.
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