B.P. Marsh & Partners PLC
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B.P. Marsh & Partners PLC
Earnings Call Analysis
Summary
Q4-2024
In its strongest year since floating on AIM in 2006, BP Marsh reported a 20.9% increase in NAV to GBP 229.2 million. Consolidated profit before tax rose by 58% to GBP 43.6 million, driven by a 35.9% rise in the equity portfolio. Shareholders enjoyed a 22% total return, including a proposed final dividend of 5.36p per share. Key events included a GBP 36.4 million net gain from the sale of Kentro and notable new investments in Pantheon Specialty, Verve Risk Services, and Ai Marine. The firm remains confident given its GBP 81.2 million liquidity and robust investment pipeline.
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Yes. Thank you, everyone, for joining today's B.P. Marsh presentation. [Operator Instructions] Thank you.
Good morning all. Pleased to welcome you to the B.P. Marsh full year results for the financial year ending 31 January 2024. As usual, on these results is myself presenting, Dan Topping, Chief Investment Officer; and Jon Newman, our Finance Director.
This set of results is our strongest since the business floated on AIM in 2006. As such, I'm very pleased to present them to the market. I'd like to take this opportunity to thank all the members of the B.P. Marsh team and the wider portfolio for their efforts in allowing us to achieve them.
We set out the key metrics of this year on Slide 3, which sets out consolidated profit before tax for the year of GBP 43.6 million, significantly up from last year at 31st January 2023 at GBP 27.6 million. Our net asset value, which we feel the key barometer of performance, has increased by GBP 39.7 million to GBP 229 million, a 20.9% increase. And the underlying portfolio over the year has increased by 35 -- nearly 36%.
This delivered a total shareholder return for the year of GBP 41.7 million, up from GBP 23.9 million in the prior year. At present, for the financial year, available capital of GBP 81.2 million, which has increased by GBP 29.7 million on the year prior. Aggregate dividend per share for the year of 10.72p, up from 5.56p for the financial year 31st January 2023. By 2026, GBP 24.8 million of dividends will be distributed since 2010, which is an aggregate 70.68p per share, or equivalent to 50% of our floatation price.
We're delighted with the overall results and the performance of the group in the year, which is a continuation of prior year's positive results. We try to show our long-term approach and the results it delivers on Slide 4, which sets out a consistent long-term net asset value growth, which probably speaks for itself.
Slide 5 shows that the dividend strategy that we pursued since 2010. In aggregate, we deal with this further in the presentation and a significant event for the year was the sale of CBC, which we deal with in Slides 6 and 7.
Talking to CBC, we see this investment and disposal as another example of our unique investment approach and our ability to produce bespoke investment situations which provide the opportunity for significant returns. As can be seen from the slide, in 2017, we invested GBP 3,500 alongside a loan facility of circa GBP 4 million for a 35% shareholding, which increased over time to a final shareholding of 43.8% in CBC. The completion, which took place post year-end, B.P. Marsh's initial consideration of GBP 42.1 million for our shareholding, which delivered an IRR of 44%.
As Slide 7 shows, during the period of our investment in CBC, 100% value of the company increased from circa GBP 2 million to over GBP 108 million. That's an equity value. We're delighted with CBC. The team there produced exceptional results, and we wish them well in their future partnership with SRG, the acquirer of that business.
Turning to the disposal which occurred during the financial year, the sale of Kentro. This is dealt with on Slide 8 and 9. Talking to our investment in Kentro, again, it shows our -- or underlines our unique approach to investment. And as much as at the start point, we took 5% shareholding for GBP 1.5 million. Over the period of our investments, we increased our shareholding from 5% to nearly 20%, providing further -- and we've got GBP 15 million, which allowed Nexus team to complete approximately 20 acquisitions and growing revenue and profitability by 10 -- nearly 10x with adjusted EBITDA growing from GBP 2 million to north of GBP 20 million. When we completed our exit of Kentro in October 2023, the disposal delivered an IRR of 23.66% and a money multiple on equity invested at 3.41x over a nearly 10-year period.
Turning to Slide 10. This outlines the group's investment in LEBC and the agreement which we reached to Titan to sell its IFA trading asset, Aspira, to Titan Wealth Holdings. This transaction completed post year-end in April 2024, with B.P. Marsh saving all its outstanding loans, and we received full repayment of our outstanding loans. The sale of Aspira to Titan allow LEBC to meet all its obligations as regards with the FCA regarding its historical defined benefit pension transfer advice. That equity proceeds from the sale will be received over a 3-year earnout period.
Turning to Slide 11. This addresses our distribution policy to shareholders following the realizations mentioned above. As I said earlier, by 2026, we will have distributed over GBP 24 million in dividends since 2010, equivalent to half what we floated at, i.e., GBP 1.40 per share in 2006. Following the announcement of our disposal of CBC, B.P. Marsh paid a special dividend of GBP 1 million in May. Alongside this dividend, we announced the following: a final dividend of GBP 2 million for the year ended 31st January 2024, which we paid in July 2024; and further dividends of GBP 4 million per annum for the next 2 financial years. We believe this rewards our shareholders for their patient support of the company whilst also providing and retain significant firepower for new investments and also to support the existing portfolio.
The group has an exciting pipeline of new investments, and talking us to the numbers in the prior year -- the financial year just ended on Slide 12. We have the opportunity to execute on these, subject to us obtaining the terms that we require to allow us to deliver a successful investment.
Given the group's liquidity on the back of these disposals, we clearly have more capital to deploy, but we're not going to change our investment approach. It will still be within the metrics that we've used to date. We aren't going to increase the amount we invest or the type of deal we're looking at. We believe with the investor of choice for start-ups and SME in the insurance distribution and wider financial services sector. We won't be changing our approach. We do have more capital to deploy to the existing portfolio, which I think is a continuation of what we've done in recent times as evidenced by what we did with Kentro, and so that's something that we'll look to continue.
Over the year, we undertook 3 new investments: Pantheon Specialty, Verve Risk Services and Ai Marine. Looking at Pantheon on Slide 13. This is an opportunity to once again partner with Rob Dowman, an individual with over 30 years of experience in the sector, having been CEO of Besso when we invested -- an investor in that. And Rob and his team are recognized as leading London market casualty brokers and specialized complex placements throughout the world.
Since the investment, Pantheon has grown exponentially. Year-to-date performance is over GBP 7 million of revenue and GBP 2.4 million of EBITDA in the 7 months year-to-date. And the business is forecasting to produce over GBP 18 million of revenue and in excess of GBP 10 million of EBITDA in its first financial year.
Following the year-end, we acquired a further at least 7% stake in Pantheon for a consideration of GBP 7.3 million, lifting our shareholding to 32%. It's been a tremendous investment already, and we see great opportunities for shareholder returns from Pantheon.
Moving to Verve on Slide 14. This is an underwriting agency that specializes in professional and management liability in the insurance banks, the insurance companies, insurance sales and insurance brokers. We've backed an experienced management team in the guys of Scott Simmons and Alan Lambert. They were a unit in another business which we provided the finance for them to conduct a management buyout from. Again, a strong start for them and continued opportunities for growth. So we're delighted with how Verve has started its life in the B.P. Marsh portfolio.
Turning to Slide 15. Ai Marine was the newest investment completed in the year. Ai Marine, an underwriting agency specializing in marine hull, and it underwrites a global portfolio business with a strong focus on U.K. and Europe, Middle East and APAC regions. Established by Charles D'Alton and Tom Fulford-Smith, experienced marine practitioners with a track record of building out companies, they previously had their own insured marine broking company, Latitude Insurance Brokers (sic) [ Latitude Brokers ], which they successfully built up and sold. They've recently -- Ai Marine recently secured Lloyd's coverholder status. So it has got multiple lines of capacity and is doing very well. We see really good upside again with Ai Marine.
Post year-end, the group invested in Devonshire Underwriting Limited, Slide 16, an underwriting agency that specializes in transactional risk insurance or, some will term, warranty and indemnity insurance. We've backed an experienced management team with over 30 years of experience in transactional liability, and again, we believe that Devonshire is a perfect fit for our diversified investment portfolio, backing an exceptional management team with great opportunity for upside shareholder returns.
These all new investments all exemplify B.P. Marsh's style of investment, offering unique structures, which track motivated and entrepreneurial management teams.
Turning to our overall insurance position on Slide 17. This indicates the aggregate size of the premium produced or underwritten within the portfolio. As you see, it's GBP 1.27 billion, up from GBP 1.05 billion, not evenly split but almost evenly split between underwriting agencies and broking investments, which gives an idea whilst we're an extra large investor, the portfolio is quite significant from a premium standpoint, and it's not something we're trying to jump for, but it does show the size of the B.P. Marsh portfolio from an aggregate standpoint.
The full portfolio is set out on 18 and 19 in terms of how much cost of investment was alongside our most recent valuation and returns on investments. We try to draw out the larger ones within the portfolio, ATC; LPR, Lilley Plummer Risk; and Stewart Specialty Risk underwriting.
XPT, on Slide 20, is now the group's largest investment, which is no mean feat given we invested in it as a startup in 2017. Actually is -- now produces just under $1 billion of gross written premium, employs over 300 people in 22 office locations across the United States, has made 16 in acquisitions since we invested. 2023 was an adjusted EBITDA of $15.2 million. 2024 was a budget EBITDA of -- in excess of $22 million. So it's been a tremendous investment, and we see even greater upside as this business takes advantage of the economies of scale it's developed since we invested.
Over the course of the year, B.P. Marsh lent XPT a further GBP 4.9 million to pursue its acquisition strategy. GBP 800,000 of which has already been repaid. The most recent acquisition by XPT is an underwriting agency based in Florida, Flood Risk Solutions, which unsurprisingly specialize insurance solutions for flood risks.
Turning on from there. Slide 21, ATC, Australian underwriting agency, one of the largest Lloyd's underwriting agencies in Australia. This more than doubled in size from a premium and profitability standpoint since we invested in 2018. We folded one of our existing portfolio companies, MB Prestige Holdings, into ATC. And now from where it was when we invested, it's targeting to get to $250 million of GW, gross written premium, with a long-term 3- to 5-year strategy of getting to $0.5 billion, which will put us as one of the largest independent underwriting agency in Australia. We certainly feel that the management team displays all the potential to deliver on that.
Moving on from ATC, Lilley Plummer Risk, Slide 22. Marine -- the Lloyd's marine broker that we backed as high off from a separate transaction, this has now grown from just marine to nonmarine when we invested at approximately GBP 0.5 million of brokerage. This is now growing to north of GBP 10 million of brokerage and circa GBP 5 million of EBITDA in the period since we invested a tremendous investment. A very capable management team. And again, this is another investment that we'll look to deploy capital to allow it to continue on its growth trajectory.
Turning to Slide 23, Stewart Specialty Risk underwriting. A standout within the portfolio from an equity investment standpoint, this is a company that we only invested $17 or -- that's GBP 19, sorry, $30, which we now value at nearly GBP 12 million. It was a startup when we invested. It's now, for the year ending 2023, produced CAD 80 million of premium income and should surpass $100 million in 2024. From [ one man ] the business plan has grown to become one of the largest owner-operated underwriting agencies in Canada. Again, we see continued opportunities to support this investment in its growth.
Moving on from the portfolio to the wider insurance sector, Slide 24. I don't intend to give a presentation on insurance price changes, but we have given a bit of narrative in terms of where pricing is going. Rates continue to rise. Property casualty sector but at a slower pace, and we are seeing financial lines ratings come down. Again, I'm not looking to give a presentation on that, but happy to answer any wider questions post this presentation.
And drawing my part of the presentation before I hand over to Jon Newman to go through the financial metrics. As I said at the beginning, we're delighted with the results that we've achieved and -- thanks to our partnership. With the portfolio companies and the team at B.P. Marsh, we're delighted with the results, but also to emphasize, once we've seen a number of realizations significant, our modus operandi remains the same, being that we continue to identify businesses with strong management teams and even stronger growth potential.
We feel that we're uniquely placed to help fund support and develop these companies so they can deliver on the opportunities. Doing this, this produces returns on our investments to our shareholders, which we deliver by our combination of equity and growth within the portfolio and regular returns of capital to our shareholders via dividends and/or share buybacks. We feel that we've got the blend about right on that. And certainly, the portfolio and new business pipeline give me great confidence for the year ahead.
Given the strong cash position, our current portfolio, we believe that the group is in a very positive position moving forward. We, as a team at B.P. Marsh, are very much excited by the future, and myself as Chief Investment Officer share this sense of excitement given the opportunities available to us. Such opportunities should have a positive outcome on the company. And ultimately, we're all here for the share price, which in the long run is the scorecard for us as a listed business.
Before handing over to Jon and repeating myself for the final time, all of this could not be achieved without the team at B.P. Marsh and our partners within the portfolio, which I'm grateful to.
I can now hand over to Jon to talk through in more detail his thoughts on the financial performance indicators within our results, after which we'll deal with any questions any of you may have.
Thank you, Dan. So I'm pleased to present the key financial highlights for the year to 31st of Jan 2024. So we've clearly had an excellent year.
Overall, our NAV has increased by GBP 39.6 million or 20.9% for the year compared to a GBP 22.9 million uplift or 13.8% in the previous year. Our NAV now stands at GBP 229.2 million, which is equivalent to 629p per share or 626.9p on a diluted basis. That equates to a total shareholder return of 22% for the year, including dividends of GBP 2 million that were paid in aggregate in 2023.
Overall, our group delivered consolidated profit before tax of GBP 43.6 million for the year. That's versus GBP 27.6 million in the previous year, an increase of 58%. So majority of the profit relates to the increase in valuations of the investment as Dan just covered earlier, with the equity portfolio rising by 35.9% this year versus a 9.1% (sic) [ 19.1% ] increase in the previous year. That's adjusting for any additions and realizations. And the equity portfolio now stands at GBP 165.4 million.
On an underlying basis, the profit before tax was GBP 0.1 million for the year. However, I should note the sale of Kentro delivered a net gain of GBP 36.4 million, which, as it was sold at the valuation brought forward at 31st of Jan '23, no profit on disposal was recognized in the income statement for the year as the gain has been recognized by unrealized fair value movements over preceding years and is just shown as a transfer from the fair value reserve to retain profits within the financial statements.
A final dividend of 5.36p per share or GBP 2 million has been proposed to be paid in July 2024, bringing the total distribution since the year-end to 10.72p per share or GBP 4 million, including the GBP 2 million paid in March and May of this year.
So turning to the next slide. Since flotation, the group has achieved compound growth of 9.4% per annum and 12.1% since inception. That's after all expenses, tax and distributions and excluding any capital raise.
So this slide sets out the key investments, realizations and loan portfolio movements during the year. We've invested GBP 3.4 million in equity in the year, including GBP 2.9 million into XPT in the U.S. and GBP 0.5 million into 3 new investments. We also received GBP 53.1 million in proceeds from realizations. GBP 51.5 million was received from the sale of Kentro, delivering this GBP 36.4 million gain. In addition, we also received GBP 800,000 from the exercise of a share option with CBC and GBP 700,000 from the redemption of preference shares from Lilley Plummer.
Turning to the loan book. This increased from GBP 11.5 million at Jan '23 to GBP 28.9 million at the year-end. We granted GBP 20.3 million in new loans during the year including GBP 8.8 million to CBC [ in aggregate ] part of the preparation for CBC for sale, GBP 4.9 million in XPT to enable them to make a new acquisition or GBP 4.7 million (sic) [ GBP 4.5 million ] to Pantheon and which has enabled them to expand so rapidly. We also received GBP 2.6 million in loan repayments over the year, including GBP 1.6 million from XPT, repaying part of the loans we led to them earlier in the year.
So given we don't set exit clauses for a medium to long-term investor with an average holding period of over 7 years, we often structure our investments as a mixture of equity and debt. So this enables a yield to be received on the investment that covers our operating costs, and debt repayments helped to replenish our capital funds rather than having capital funds tied up until an eventual exit. The full breakdown of the loan portfolio is set out in the appendices, and all are up to date in value at par. I can confirm the weighted average interest rate charge for the year was circa 9.7%, which was up from an average of 8.6% charge in the year to 31st of Jan 2023.
Turning to the next slide. At the year-end, we had GBP 40.5 million in cash, up from GBP 12.1 million at Jan 2023 due to the investment realizations and loan movements I've just discussed and following GBP 2 million of dividends paid. So clearly been a number of significant developments since the year-end. Notably, CBC completed in March, and we received GBP 42.1 million in upfront consideration. Regarding investments, we've provided GBP 9.2 million of further equity, including GBP 7.3 million in Pantheon as Dan set out earlier. The loan portfolio has also moved significantly, is reduced by just under GBP 10 million to GBP 19 million overall. GBP 1 million of new loans were granted to our recent new investments for working capital in line with their business plans, and GBP 10.9 million of loans were repaid. That includes GBP 5.9 million from CBC, the GBP 3.3 million from LEBC on completion of their respective deals and GBP 1.5 million from Pantheon. We currently have GBP 81.2 million of liquidity prior to any future distributions, and that equates to 35% of quoted NAV.
Turning to the next slide to summarize. Why invest in B.P. Marsh? Well, we are a leading specialist investor with an excellent track record and a team with a wealth of experience. Although we specialize in financial service businesses with a specific interest in insurance intermediaries, our portfolio is diversified in terms of product lines and geographically, mitigating risk. Total insurance market offers excellent growth opportunities, which we are able to exploit through our extensive network, and we offer access through B.P. Marsh to unique investment opportunities.
Our investments continue to achieve attractive returns as demonstrated by the strong performance this year growing the NAV to over GBP 229 million and by delivering 9.4% compound growth since floatation after all expenses, realizations and distributions. We have just over GBP 81 million in cash for any future distributions. We've demonstrated that we can successfully realize investments at or above previous valuations, with strong exit performance over the last year with the sales of CBC and Kentro. We have a strong pipeline of investment opportunities, both within our existing portfolio and into new opportunities.
So this concludes our formal presentation, and I would now like to invite any questions that you may have. Thank you.
Thank you very much, everyone. [Operator Instructions] Thank you. Barrie, you can go ahead.
Can you hear me?
Yes, Barrie.
Yes.
Terrific. Okay. I've got 3, if I may. First of all, perhaps one for Jon. The expenses, I think, was up about 61% -- underlying operating expenses, up 61%. I just wondered if you could explain that and give us a bit of color.
Secondly, I'm just wondering about the [ -- so the ] underwriting cycle. And in the market commentary, you talked about the rating environment almost topping out slightly. And I just wondered, is that likely to have an impact on the portfolio or the level of interest in, say, MGAs as the underwriting cycle softens?
And lastly, I just wondered, obviously, given the GBP 81 million of cash that you're sitting on, I appreciate you're doubling the dividend going forward and also the share buyback has been announced this morning. But I just wondered how you get to or you've got to the view that the GBP 81 million is the right number and you're not giving more back in dividends or more in terms of share buyback. So what was the conversation? And do you see that you're going to be able to use that GBP 81 million in the next short -- I guess, short to medium term, what sort of outlook? That's it.
Thanks, Barrie. So on the expenses, so there were some specific one-off bonuses in relation to the Kentro sale. As I said, that delivered over sort of GBP 36.5 million of profit. And so there were some bonuses paid out related to that. We've also had increased investment activity. Clearly, a lot of cash, and Dan and his team have been extremely active as you would have seen with the number of opportunities, specifically within the existing portfolio and the new, plus general cost inflation.
Dan, do you want to talk about the underwriting cycle?
Yes, just very diplomatically, Barrie, I was obviously a beneficiary of that uptick in the cost base at B.P. Marsh, so I can't go -- let that go unacknowledged, so I must say that.
On the underwriting cycle, I think it's starting to soften, not necessarily across every line, but my starting point is where pricing increases are not going up as much as they were or actually coming down. I think Patrick Tiernan at Lloyd's said, there's some stupidity reentering the market on D&O pricing. That's probably broadly accurate. But from our standpoint, given we're on the distribution side and we're long-term investors, i.e., we don't get into a line of business based on it being increased pricing and then get out like some insurers have done. To look at Fidelis, for example, they set out market for a good 2 or 3 years, and immediately, [ part then ] when pricing went up. That's not our approach.
So as long-term investors, hard or soft markets, which we've traded through at least 4, don't really impact us in terms of our investment approach. If pricing does come down, that will have an impact. But the reality is the majority of our portfolio or everything we look at is either organic growth from hiring or new business production or via acquisitions. So we're somewhat protected, I would say, from a softening market.
On MGAs, I kind of take a country view. And as much as in a hard market, MGAs are less in fashion because they're taking value out of the premium chain. The -- this question whether it's needed, all our MGAs survive the hard market actually prospered. And turning into a softening market, insurance capacity is desperate for distribution, which is the whole reason that -- of an MGA. So I suspect as this market doesn't increase or softens, then we're going to see more distribution by our MGAs as opposed to solely of capacity providers.
And on the final question, the split in cash. I mean we've increased the dividend. We'll always look to return capital to shareholders, but we're not going to -- from a start point, we're not going to change our investment approach for new business. So that will be at the smaller end of the market. But I think as evidenced in these results and the disposals, we are in a position to deploy more capital to existing investments where the returns continue to be very appealing. And I think that's where we're keeping our powder dry, for where in the past, we didn't have this capital, we might be forced to consider discussing it with the management team and say, look, your value x, our balance sheet is -- can't sustain that. You should either look to find a new bigger partner or something else, and we'll support you in that for everybody's mutual benefit, whereas now where we are given our size, we can continue to participate in those investments.
So if you look at XPT, that's circa GBP 80 million that we've deployed, I think. It's growing from a startup to nearly approaching $1 billion of premium income in dollars, north of 20 million. And I think at this stage, given the pipeline XPT has, that's something that we continue to look to support, which would be meaningful capital allocation from B.P. Marsh's standpoint in ways that we haven't done in the past where we didn't have that capital. So I think as long as the dividend continues to be good, new business pipeline continues to be good, then the balance will look to support the existing portfolio.
Great. And can I just be cheeky and ask a follow-on? In terms of the numbers of opportunities you're seeing, it was obviously up in year ending January '24. Has it accelerated into this year where we are now?
Not materially, Barrie. I think from my standpoint, I almost want the aggregate number to come down but still have the ability to do that 3 to 5 deals per year, whether it's new investments or disposals. And I think the doable deals that we're looking at is still pretty strong and continues to be strong. But we want to cut more chat out so we can focus our attention on things that we think will deliver the exceptional returns. And the pipeline is robust.
Okay. Perfect. I should have said at the beginning, congratulations on great set of numbers.
Thank you very much, Barrie. And does anyone else have a question they'd like to ask? [Operator Instructions] No worries. Thank you very much.
Dan, I don't know if you want to do any final remarks. If not, thank you very much, everyone.
Thanks all for attending. Exceptional set of results that we're delighted with and a continuation of our long-term performance.
Yes. If anyone does have a question that they want to come back to us afterwards, just get in touch, e-mail, phone as usual. We'll be happy to respond.
Thank you very much.