B.P. Marsh & Partners - Year-End Trading Update

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B.P. Marsh & Partners Plc

("B.P. Marsh", the "Company" or the "Group")

Trading Update

B.P. Marsh, the specialist investor in early stage financial services businesses, is pleased to provide the following unaudited trading update for the Group's year ended 31 January 2020.

Highlights

  • The completion of two new investments; Agri Services Company PTY Limited in Sydney and Lilley Plummer Risks Limited in London
  • £2m follow-on funding to Nexus Underwriting Management Limited, as part of its wider £16m fundraising exercise
  • Loan Facility of US$2m to XPT Group LLC, based in New York City, which also completed a successful US$40m refinancing exercise with Madison Capital Funding LLC
  • The Group secured access to a £3m loan facility with attractive terms
  • As at 31 January 2020, cash of £0.8m and available cash of £3.8m
  • The Company continues to maintain a diverse portfolio of investments, by sector, geography and currency, with 57% of the investment portfolio's revenue originating from overseas

Net Asset Value

The latest published Net Asset Value ("NAV") 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.

The Company's Annual Results for the full year to 31 January 2020 and an updated NAV will be announced on Tuesday 9 June 2020.

B.P. Marsh remains focussed on taking actions to reduce the differential between NAV per share and the current share price.

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. Chairman of the Group, Brian Marsh, gifted c.2% of his direct shareholding to the Marsh Christian Trust, a charitable trust he founded in 1981, as he does every year.

Cash Balance

At 31 January 2020 the Group had access to cash of £3.8m. This is inclusive of the undrawn £3m loan facility with Brian Marsh Enterprises Limited ("BME"). As at 31 January 2020, the Group was debt free.

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.

As previously announced, during the year, the Company explored short, medium, and long-term funding options so that it could continue to take advantage of new investment opportunities as they are identified.

Having considered the available options, and taking account of market conditions and the performance of its portfolio, the Group entered into the £3m loan facility with BME, a company of which the Chairman of the Group, Brian Marsh, is a Director and sole Shareholder.

The loan facility provides the Group with access to further investment funds at an interest rate of the higher of 4% or the UK 1-month LIBOR plus 3.25% and is available until 29 July 2021.

The Group considered these to be attractive terms when compared to other avenues of funding.

New Investments

Ag Guard PTY Limited ("Ag Guard")

In July 2019, the Group completed an investment into Ag Guard, based in Sydney Australia, a Managing General Agency specialising in Australian Agriculture Insurance. The Group acquired a 36% equity stake for up-front consideration of AU$1.47m (c.£0.8m), with further consideration of AU$1.13m (c.£0.6m) paid in January 2020. This transaction represented the Group's fourth Australian investment.

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.   

Lilley Plummer Risks Limited ("LPR")

In October 2019, the Group subscribed for a 30% equity stake in the London based, Lloyd's Marine Broker LPR, the Group's third Lloyd's Broker in its current portfolio. The Group invested £1m by way of both redeemable and non-redeemable preference shares.

In the first three months of being operational, the founders, Stuart Lilley and Dan Plummer, have been extremely active in expanding the workforce and have more than doubled the number of employees working within the organisation. LPR have both strengthened their original marine operation and also hired new members of staff, which have enabled them to diversify into new product lines.

Mike Lilley joined from Chesterfield Insurance Brokers after 17 years of service, being appointed Chairman of LPR, and to open a Treaty Reinsurance department.

Mike Gooding will be joining LPR from Guy Carpenter after 12 years of service, to head up the Terrorism and Political Violence department.

Follow-on Investments and Funding

Nexus Underwriting Management Limited ("Nexus")

Nexus is one of the largest independently owned Managing General Agency in the UK insurance market, budgeting to write over £345m of Gross Written Premium across various specialty lines in the 2020 financial year.

In March 2019, Nexus launched Xenia Broking Group Limited, a new entity which consolidated Nexus' trade credit broking activities and will remain independent and segregated from Nexus' underwriting operations. Nexus is now one of the leading independent UK trade credit brokers, having a c.10% market share of the c.£350m Gross Written Premium trade credit market.

In April 2019, the Group provided Nexus with a £2m revolving credit facility, as part of a wider £16m fundraising exercise, in order to undertake M&A activity.

Nexus has acquired Credit & Business Finance Limited, Capital Risks MGA Limited and Plus Risk Limited in the past year. These acquisitions demonstrate Nexus' M&A strategy and the company continues to explore value accretive acquisition opportunities.

In September 2019 Nexus announced the appointment of Andrew Moss as independent Non-Executive Chairman on Nexus' main board as part of its strategic growth plan. Andrew has had a long and distinguished career within the insurance industry including five years as Group CEO of Aviva Plc, and prior to this he spent four years as Director of Finance, Risk Management and Operations at Lloyd's of London. In 2014 he joined Parker Fitzgerald, the London based Management Consultancy, as Chairman of the Advisory Board where he helped steer their recent acquisition by Accenture to its successful outcome.

In January 2020 Nexus Specialty Inc., part of their US platform, established a wide-ranging new programme agreement with A-rated Crum & Forster, that allows Nexus to underwrite their market leading trade credit products on a fully admitted basis in the US.

XPT Group LLC ("XPT")

Since investment in 2017, XPT the specialty lines distribution company, has made numerous acquisitions, providing it with a footprint across the US with offices in North Carolina, Texas, California and New York. From a standing start in 2017, it is now forecasting annualised Gross Written Premium of US$260m for the 2020 year.

In April 2019, the Group provided XPT with a US$2m Loan Facility.

Later that year XPT successfully secured US $40m of aggregate funding from Madison Capital Funding LLC ("Madison"). As part of the transaction, Madison took an equity interest in the business which values XPT at an enterprise value of c.US$54m. Madison is backed by the financial strength and stability of New York Life Insurance Company and has $10.6 billion of assets under management, exclusively investing alongside private equity sponsors and other investors.

Portfolio Highlights

UK

CBC UK Limited ("CBC")

CBC continues to deliver strong growth, with the 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.

CBC have successfully established an International Division for professional lines, further expanding its product offering.

EC3 Brokers Limited ("EC3")

Over the course of the year EC3 has made several new team hires, establishing both a North American Property Division and a Sports and Entertainment Division. This further diversified EC3's product offering. The management team at EC3 continue to explore further value accretive hires and acquisitions.

In May 2019, James Murphy joined EC3 as Head of Broking having had many decades' experience in the London Insurance Market, starting his career at Nelson Hurst & Marsh, then as part of the management team of a Lloyd's broker that was subsequently acquired by Willis. Following on from this, EC3 expanded its UK Contingency & Entertainment division with three senior hires, helping it towards its goal of becoming the pre-eminent independent entertainment insurance broker in the London Market.

In August 2019, EC3 established a North American Property division, headed up by Matt and David Jeffery, with further hires thereafter. These two individuals have over three decades of combined experience in the London Market with senior roles at Jardine Lloyd Thompson, Cooper Gay and Besso.

Since investment in December 2017, EC3 has grown its top line revenue from c.£9m to a 2020 budget approaching £14m.

The Fiducia MGA Company Limited ("Fiducia")

Fiducia, the UK Marine Cargo Underwriting Agency 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.

In January 2020, Fiducia expanded their product offering with the establishment of a Fine Art and Specie division, headed up by James Bavin. James was previously head of Marine at Advent Capital. This new division is supported by underwriting capital from Lloyd's of London to complement Fiducia's existing product offering. 

LEBC Holdings Limited ("LEBC")

On 2 September 2019 the Group announced that LEBC Group Ltd, a UK-based IFA and 100% owned subsidiary of LEBC, had agreed to voluntarily cease the provision of Defined Benefit transfer advice. This was pursuant to the FCA's market-wide review of the Defined Benefit transfer market.

Advice in the Defined Benefit transfer market represented 15% of LEBC's audited consolidated total revenue in its previous financial year, ended 30 September 2019. 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.  In line with its successful long-term investment strategy, the Group continues to support LEBC. 

LEBC continues to offer a full range of private client and employee benefit advice and is focussed on growing the business in these areas and investing in technology and recruitment, to continue to meet a growing demand for advice from private individuals and companies.

Canada

Stewart Specialty Risk Underwriting Limited ("SSRU")

SSRU, 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. SSRU has secured CA$15m of A-rated Canadian capacity to write primary and excess Property products, tailored to individual clients in the Natural Resources, Complex Commercial and Construction segments.

As part of this new product offering, SSRU has appointed Heather Jamieson as Vice President of SSRU's Property division.

Australia: ATC Insurance Solutions PTY Limited ("ATC"), Sterling Insurance PTY Limited ("Sterling") and MB Prestige Holdings (PTY) Limited ("MB")

The Group's established investments in Australia, ATC, Sterling and MB continue to perform well, with all three investments increasing their premium income and profitability in the year. This results in an aggregate combined budget of approaching AU$150m in premium income and AU$23m in commission income.

This performance, in a challenging insurance market, underpins the quality of these companies and their management teams.

In September 2019, ATC partnered with the Lloyd's syndicate, Talbot Underwriting (an AIG company), to provide a bespoke insurance solution to the Australian SME sector. The Group welcomed ATC's move into this fast-growing sector of the insurance market.

In December 2019, Sterling announced further expansion of its aviation division with the appointment of Greg Leeman, and partnership with Tokio Marine Kiln in bolstering its product offering in Aviation insurance.

Singapore

Asia Reinsurance Brokers PTE Limited ("ARB")

In December 2019, ARB appointed William Pang as Managing Director, to oversee ARB's business portfolio and the teams across ARB. William has 20 years of reinsurance experience, having worked for Munich Re, ACR and JLT Re in various underwriting, broking and senior management roles.

Additionally, in September 2019, Chiam Heng Lock was appointed a Director of Reinsurance. Chiam has a wealth of experience in this market, having previously worked at Willis Re, JLT Re, and worked with Copenhagen Re and Everest Re for many years.

New Business Opportunities

B.P. Marsh is well known in the sectors in which it specialises and the quantity of opportunities presented to the Group remains high.

B.P. Marsh has a wide array of industry specific contacts with whom the Group remains in regular contact, to drive germane and high quality deal flow.

The financial year closed with a total of 117 new opportunities having been presented to the Group during the year, in comparison with 64 in the previous year. Of the 117, the majority were in the insurance sector. The increase in opportunities over the past year underpins our unique investment approach, with the Group continuing to see significant deals in the Financial Services sector.

The Group is well positioned in its current financial year, with a strong pipeline of new opportunities, a number of which should develop over the course of the year.

The Group will remain disciplined in its approach to the investment process, focusing on niche SME businesses in sectors which the Group understands, with the aim of achieving considerable short and long term growth.

In addition to this, the Group's investee companies continue to seek and undertake bolt-on acquisitions.