“The latest published Net Asset Value was £130m, or 360.9p per share, as at 31 July 2019, which represented a 3% increase, or a 4.3% increase including the dividend paid in July 2019, for the six months ended on that date. From its inception in 1990 until 31 July 2019 the group has maintained an average annual compound increase in NAV of 11.7%. The group is expected to report a positive performance for the financial year ended 31 January 2020.” What price for this track-record, current performance and ‘focussed on taking actions to reduce discount to net asset value’?... Presently, a 268p offer price and thus…
Operations: B.P. Marsh & Partners (BPM) is a specialist investor in early stage financial services businesses. Its year ended 31st January 2020 saw the completion of two new investments – Ag Guard (a Managing General Agency specialising in Australian Agriculture Insurance, c.£1.4 million) and Lilley Plummer Risks (a Lloyd's Marine Broker, £1 million) and two follow-on investments – Nexus Underwriting Management (£2 million revolving credit facility) and XPT (specialty lines distribution company, $2 million loan facility). A recent trading update also included;
CBC UK Limited – “have successfully established an International Division for professional lines, further expanding its product offering… year ending 31 December 2019 expected to report revenue of £7m and EBITDA of £1.7m. This result represents an increase of c.20% in revenue and c.50% in EBITDA over the year”;
EC3 Brokers Limited – “establishing both a North American Property Division and a Sports and Entertainment Division… since investment in December 2017, EC3 has grown its top line revenue from c.£9m to a 2020 budget approaching £14m”;
Fiducia – “established in November 2016, has grown from a start-up position to Gross Written Premiums of £12m for the year ending 31 December 2019, across the Marine Specialty Insurance Sector”.
It also noted progress in Canada (Stewart Specialty Risk Underwriting, “the Toronto based provider of specialty insurance products to the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors, has secured a new Property offering”), Singapore (Asia Reinsurance Brokers with key new hires) and Australia (“ATC, Sterling and MB continue to perform well, with all three investments increasing their premium income and profitability in the year”). Elsewhere in the UK, IFA LEBC agreed to cease provision of Defined Benefit transfer advice – “pursuant to the FCA's market-wide review of the Defined Benefit transfer market”. This represented 15% of LEBC's revenue, with it noted “this impacted the group's valuation of its 59.3% equity interest in LEBC, which was reduced to £23.9m at its most recent valuation for the period ending 31 July 2019. LEBC has implemented a significant restructuring and is working on a number of new initiatives”.
Management Incentive: Executive Chairman and founder Brian Marsh has prior experience of insurance broking and underwriting and over 30 years’ experience in building, buying and selling financial services businesses particularly in the insurance sector. His remuneration for the year ended 31st January 2019 totalled £159,861 and he has a direct beneficial interest in 15,662,079 shares (41.90%). Chief Investment Officer Daniel Topping was appointed as a director in 2011 having joined the company in 2007, following two years at an independent London accountancy practice. His remuneration for the year ended 31st January 2019 totalled £304,217 (including a £95,984 bonus) and he has a beneficial interest in 103,335 shares. Director of Finance Jonathan Newman is a Chartered Management Accountant with over 20 years’ experience in the financial services industry. His remuneration for the year ended 31st January 2019 totalled £276,564 (including a £74,985 bonus) and he has a direct beneficial interest in 17,458 shares. Managing Director Alice Foulk joined the company in 2011 with prior experience at a life assurance company. Her remuneration for the year ended 31st January 2019 totalled £229,166 (including a £95,975 bonus) and she has a direct beneficial interest in 19,787 shares. The latest trading update noted that “in the year ended 31 January 2020, as a sign of confidence in the company, nine directors and senior management of the group purchased a net c.145,000 shares in the company at market price”.
Recent Financials: The results for the half year ended 31st July 2019 showed income +12.5% to £3.1 million (including dividends of £1.9 million, income from loans & receivables of £0.6 million and fees of £0.6 million), with adjusted profit more than doubled to £1.4 million. There was then a net £4 million of ‘unrealised investment gains’. After particularly £5.7 million of net further investments and £1.7 million of dividends paid, there was a £6.4 million fall in cash (net) to £1.4 million. Current receivables though increased to £5.6 million, compared to a fall in total liabilities to £1.9 million. The announcement also noted “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%”. We don’t tend to like related-party transactions but here concur that those are “commercially advantageous terms”. The company’s update included, “as at 31 January 2020, cash of £0.8m and available cash of £3.8m… In the financial year ending 31 January 2021, the company is expected to receive over £2.5m in loan repayments from its investee companies, which will assist the group to continue to pursue its core investment objectives”.
Risks & Valuation: The Woodford saga showed the risks of unlisted investment but here there is a team with significant specialist experience and a track record, including realisations, which supports that there is the stated disciplined investment process. There is still sector risk but there is also various diversity in the portfolio, including 57% of its revenue originating from overseas. The latest trading update emphasised “the group is well positioned in its current financial year, with a strong pipeline of new opportunities” and the track record reassures on long-term progress. Considering this, we consider a meaningful discount to NAV here harsh, though even a 16% discount to the last stated NAV would see the shares above 300p. At the current 268p offer and up to 280p, initially targeting 325p+, a buy.
This first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website for a share tip from Tom & Steve and a new shorting idea from Lucian all out just last Friday, click HERE
Filed under: B.P. Marsh & Partners, Dev Clever, Matt Earl, Plant Health Care, Woodford, Bunzl, N50 website
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