Chairman's Update
Introduction
B.P. Marsh, the specialist venture capital provider to early stage financial services businesses, is pleased to provide the market with an update on trading for the six months ended 31 July 2021 (the “Period”).
Covid-19
This Period has seen the United Kingdom emerge from the latest set of Lockdown restrictions, during which time our priority continued to be the safety of our staff, partners and other stakeholders. We successfully carried out our first live broadcast Annual General Meeting and we have continued to embrace the benefits and efficiencies that the repercussions of the pandemic have brought, alongside, of course, having to deal with the difficulties, from time to time. The Company has assisted its portfolio companies where required in light of the pandemic.
Dividend
On 30 July 2021 the Company made a distribution of 2.44p per share or £0.9m (2020: 2.22p per share or £0.8m) to all shareholders on the Register as at 25 June 2021. We always strive to reward our shareholders for their loyalty within the means of the Company whilst trying to preserve capital and available investment funds. The Board considers that it has struck the right balance by agreeing to a distribution of 100% of its underlying realised profits for the year to 31 January 2021. The aggregate amount of this distribution increased by 10% on the previous year in line with increased profitability. In the event of successful cash realisations, the Company will consider increasing dividends accordingly.
Cash Balance and Loan Facility
As at 31 July 2021 the Group had a cash balance of £1.1m in addition to a loan facility of £3m from Brian Marsh Enterprises Ltd (“BME”), a company of which the Chairman, Mr. Brian Marsh, is a director and sole shareholder. £1.0m of this facility had been drawn down at 31 July 2021.
Currently the Group has total funds available for investment of £3.7m in cash and remaining loan facility, an increase of £0.6m since the financial year end due to loan repayments and income received from the investment portfolio.
Chief Investment Officer's Portfolio Update
During the Period the Group has continued to prove resilient to the ongoing challenges posed by the Covid-19 Pandemic.
Our portfolio has performed well during the Period, and we expect this to continue through the Group's current financial year, to 31 January 2022.
Over the Period, the Group has continued to focus on our existing portfolio, working closely with our respective Management teams to ensure the on-going stability of our investments.
The Group is now placing greater emphasis on assisting our portfolio to take advantage of opportunities that are emanating as the world's economy recovers. Additionally, the Group continues to seek new business opportunities and remains optimistic that we will continue to secure scalable investments backed by capable and experienced management teams.
Turning to the insurance market itself, the Group's insurance intermediary investments continue to see rate increases across the sectors in which they operate. Whilst there are signs that rates in short tail lines of business are levelling out, rate increases continue to be strong where lines of business are exposed to long tail risk.
For insurers, rate adequacy remains a key focus, with the underlying profitability of Lloyd's and company markets being a central consideration. Whilst the Group's portfolio itself does not involve direct balance sheet exposure, our Managing General Agency (“MGA”) investments effectively borrow capacity from insurers. Therefore, they are particularly mindful of the importance of writing business that is profitable for their insurance partners.
New Business Opportunities and Outlook
The 6-month interim period closed with a total of 31 new investment opportunities having been presented to the Group, compared to 22 over the same period last year.
The Group remains well positioned to carry out new investments, with a number of early-stage opportunities in the pipeline, which should continue to develop over the course of the year.
Disposal – Post Period End
MB Prestige Holdings PTY Limited (“MB”)
ATC Insurance Solutions PTY Limited (“ATC”) acquired 100% of MB for a consideration of AU$17m (c. £9m) on 31 August 2021, with consideration being paid in a combination of cash and equity in ATC. The cash proportion of the transaction was financed out of ATC's cash reserves.
B.P. Marsh sold its 40% equity stake in MB for AU$6.8m (c. £3.57m), for which the Group received newly issued shares in ATC.
The Group previously had a 20% shareholding in ATC, which increased to 25.5% following ATC's acquisition of MB.
As at 31 January 2021, B.P. Marsh valued its 40% shareholding in MB at AU$5.7m (c. £3.2m). Therefore, this transaction represents a circa 20% uplift over the Group's latest published valuation of MB.
Additionally, it represented an Internal Rate of Return of 29% since the Group's original investment in MB in 2013 (inclusive of all income and fees) and a money multiple of equity invested of almost 9 times.
This takeover has valued ATC at AU$76m (c.£40m), resulting in a post transaction valuation for both businesses of AU$93m (c.£49m). This implies an increase of AU$5.8m (c.£3m) over the Group's combined valuations of ATC and MB, as at 31 January 2021.
Daniel McNamara, the current Managing Director of MB, also received shares in ATC as consideration for his 7.5% shareholding in MB. He joined the management team at ATC, whilst also remaining Managing Director of MB.
Chris Anderson, ATC's CEO, stated:-
“MB are highly respected in the prestige motor insurance space. MB's underwriting and financial performance has been very strong for many years. ATC are delighted with the acquisition and working with Daniel McNamara and his team.”
Daniel McNamara, Managing Director of MB, stated:-
“MB are excited to be joining the ATC Group and look forward to working with Chris Anderson and his team into the future. We've been fortunate to have enjoyed a productive working relationship with B.P. Marsh through its long-term shareholding in MB and are pleased to be able to continue that relationship as part of the ATC Group.”
Portfolio Developments
Specific developments within the portfolio during the Period are noted below:
Agri Services Company PTY Limited (“Agri Services”)
The Group's most recent Australian investment, Agri Services, has continued to develop in its provision of insurance solutions for the Australian agricultural sector, via its wholly owned subsidiary, Ag Guard.
Ag Guard has recently entered into a new strategic partnership with Elders Insurance (Underwriting Agency) Pty Limited (“Elders Insurance”), which in turn is owned by QBE Insurance Group Limited (“QBE”), one of Australia's largest general insurers.
Elders Insurance is one of the largest participants in this business in Australia, providing goods and services to the agricultural industry, ranging from wool, grain and livestock trading to financing, banking, real estate services, and insurance.
As part of this arrangement, Ag Guard will provide a specialised crop underwriting system and claims management services to the Elders Insurance branch network across Australia with insurance capacity provided by QBE Insurance (Australia).
Broadacre is the first product on which Ag Guard and Elders Insurance have collaborated, which will be followed closely by cotton. With seasonal conditions being optimal and commodity prices continuing to rally in Australia, Ag Guard is likely to outperform its ambitious targets for FY22. Ag Guard and Elders Insurance will continue to work together to develop this relationship, with there being significant opportunity to develop new innovative products together to assist rural producers across Australia.
This new partnership can be seen as transformational for Ag Guard, setting in motion the beginnings of a successful relationship with an outstanding carrier and a leading Australian agribusiness company.
Commenting on this new partnership, Alex Cohn, Ag Guard and Agri Services' Managing Director, stated:-
“Ag Guard and Elders Insurance are both wholly committed to this market, so it was a great opportunity to join forces and give customers a long-term solution. This is the first step in the partnership, and there is a huge opportunity to develop innovative products together that genuinely help rural producers.”
Paladin Holdings Limited / CBC UK Limited (“CBC”)
CBC, the London based Retail and Wholesale Lloyd's Insurance Broker, continues to perform well, building on its strong performance in its financial year which ended on 31 December 2020, where it produced Revenues of £8.7m and an EBITDA of £1.6m.
In May 2021 CBC sold CBC Insurance (Jersey) Limited (“CBCJ”), one of the leading Channel Islands' general insurance brokers, to PIB Group Ltd (“PIB”). CBCJ was acquired by CBC in 2018, and whilst CBCJ performed well as part of CBC, the sale enables CBC to focus on its specialty London Market business.
The sale of CBCJ offered CBC the opportunity to buy back 1.7% of its shares from an exiting shareholder. Additionally, it allowed CBC to trigger a Share buy back Option with the Group whereby CBC bought back 5.5% equity at a fixed option price of £0.3m. These shares (including the aforementioned 1.7%) were subsequently cancelled. As a result, the Group's shareholding in CBC has reduced from 49.2% to 47.1%.
The Fiducia MGA Company Limited (“Fiducia”)
Over the past year, Fiducia has developed a commercial relationship with Berkshire Hathaway Specialty Insurance (“BHSI”).
In 2021, BHSI became the new lead insurer on Fiducia's UK Cargo and Freight facility. A number of other A rated insurers participate behind BHSI on this facility.
BHSI was formed in 2013 and provides commercial insurance products for customers worldwide and has a financial strength rating of AA+ (Rating Agency – Standard and Poor's).
Gerry Sheehy, Fiducia's CEO, stated:-
“As we look forward to the years ahead, Fiducia's message remains the same, being that our door remains very much open to brokers who are looking for a market that can deliver quality and financially strong products, with a market-leading level of service, backed by credible capacity partners”.
Lilley Plummer Risks Limited (“Lilley Plummer”)
Since the Group invested in Lilley Plummer, the specialist Marine Lloyd's broker, in 2019, the business has grown its underlying marine portfolio and has also expanded into new product lines in new geographic locations.
Lilley Plummer has grown from a headcount of 3 staff to now employing 15 people.
It is well positioned to continue its growth since formation and has an ambitious budget for 2021, which it is on track to achieve.
Lilley Plummer has now established a company in Cyprus named LPR Insurance Brokers Limited, which became an approved overseas Lloyd's Broker in May 2021. This entity has allowed Lilley Plummer to expand its presence in providing solutions to EU clients operating in the European shipping market. Additionally, in August 2021, Lilley Plummer became FCA regulated in its own right, having previously traded as an Appointed Representative since formation.
Stuart Lilley, CEO of Lilley Plummer stated:-
“2021 so far has been an exciting year for Lilley Plummer, with continued strong growth. With the support of B.P. Marsh, we expect this to continue into 2022 and beyond.”
Nexus Underwriting Management Limited (“Nexus”)
Nexus continues to perform well in its current financial year to 31 December 2021, notwithstanding the considerable challenges that remain due to Covid-19.
Since B.P. Marsh first invested in Nexus in August 2014, its business has grown from a Gross Written Premium of £55m to a projected figure of over £400m in 2021. Since 2014, Nexus has grown its EBITDA by over 7x, now forecasting c. £19m of underlying EBITDA in its current year to 31 December 2021.
Nexus is now one of the top ten global MGAs and one of the top three outside the USA. It is a business which operates in 18 specialty classes, has relationships with over 800 brokers and around 40 relationships with insurance carriers.
It's subsidiary, Xenia Holdings Limited, is the largest independent specialist trade credit and surety broker in the UK, with a c.20% market share of trade credit insurance distribution.
Since inception, Nexus has completed 20 acquisitions, in many different fields, including Aviation & Space, Marine, Travel & PA, Trade Credit, Warranty & Indemnity, Management Liability and Professional Indemnity.
Colin Thompson, Nexus Founder and Group CEO stated:-
“Nexus' core strategy has been to focus on specialty risks to avoid mainstream insurance classes which have a higher risk of commoditisation, as well as providing significant scope for Nexus to add value to its clients.
“Management's goal remains taking Nexus to $1billion of GWP, a milestone which we are on track to achieving.”
Stewart Specialty Risk Underwriting Ltd (“SSRU”)
The Group invested in SSRU in 2017. Since then, SSRU, the Toronto based independent underwriting agency and coverholder at Lloyd's, has grown exponentially.
SSRU remains on track to achieve its current year budget for Gross Written Premium of £31m (CA$55m) and EBITDA of £2.6m (CA$ 4.6m).
In July 2021, SSRU repaid in full the original loan facility provided by B.P. Marsh at investment, amounting to £270,000 (CA$450,000). The repayment of this loan comes 18 months earlier than originally envisaged.
Stephen Stewart, Founder and President of SSRU stated:-
“B.P. Marsh's original loan facility allowed SSRU the flexibility to grow into the multi-line operation that we are today. Their continued support has helped SSRU to consistently exceed plan since inception. We have now executed early retirement of the B.P. Marsh loan facility, leaving SSRU completely debt free.
“SSRU will always look to B.P. Marsh as the first port of call for capital and strategic support as we continue the expansion of our operations. “
XPT Group LLC (“XPT”)
XPT is a specialty lines distribution business, in which the Group first invested in June 2017. The Group provided US$6m of funding via newly issued preferred shares, allowing XPT to acquire niche Managing General Agents and Wholesale brokers. Since investment B.P. Marsh has invested a further US$5.2m via equity and loans, taking its aggregate investment to US$11.2m.
Over the course of the Group's investment, XPT has acquired 8 businesses throughout the US. XPT's business is on track to control Gross Written Premiums of US$365m in 2021, producing an EBITDA of US$9m, which would represent a significant increase on prior year.
XPT now has a strong presence on the West and East coasts, as well as a growing footprint in the Midwest. XPT has established a broad and diversified book of business which has proved resilient against the difficult trading conditions over the past 18 months.
XPT's Chief Executive Officer, Thomas Ruggieri has stated:-
“XPT continues on its successful growth strategy of building a solid platform, bringing together both specialty underwriting and wholesale broking operations.
“We are currently in discussions with a number of potential new acquisitions, which could be transformational to the business.”
Interim Results
The Group expects to report the results for the six months to 31 July 2021 on Tuesday 19 October 2021.
Mr. Topping, the Group's Chief Investment Officer, and Mr. Newman, the Group Finance Director, on 8th September 2021 presented a Webinar in collaboration with AJ Bell and Shares Magazine, the link to the presentation, which sets out further information on the Company's background and current outlook, is available on the Group's website.
For further information:
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B.P. Marsh & Partners Plc |
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Brian Marsh OBE / Alice Foulk |
+44 (0)20 7233 3112 |
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Nominated Adviser & Broker Panmure Gordon |
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Atholl Tweedie / Charles Leigh-Pemberton / Ailsa MacMaster |
+44 (0)20 7886 2500 |
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Financial PR & Investor Relations |
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Tavistock |
bpmarsh@tavistock.co.uk |
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Simon Hudson / Tim Pearson |
+44 (0)20 7920 3150 |
Notes to Editors:
B.P. Marsh's current portfolio contains seventeen companies. More detailed descriptions of the portfolio can be found at www.bpmarsh.co.uk .
Since formation over 30 years ago, the Company has assembled a management team with considerable experience both in the financial services sector and in managing private equity investments. Many of the directors have worked with each other in previous roles, and all have worked with each other for approaching ten years.
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