Trading Update

RNS Number : 9380K

B.P. Marsh & Partners PLC

02 September 2019

 

Date:                            2 September 2019

On behalf of:               B.P. Marsh & Partners Plc

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, provides the market with an update on trading for the six months ended 31 July 2019.

B.P. Marsh had anticipated that it would make this Trading Update on 5 September 2019.  However, in light of the Group's recent share price performance and the announcement made regarding LEBC Holdings Limited the Group believed it was sensible and prudent to bring this trading update forward, to update shareholders on the performance of the Company as a whole and to provide further information regarding LEBC.   

LEBC Holdings Limited ("LEBC")

The Group notes its recent announcement regarding its investee company LEBC Holdings Limited, in which it holds a 59.3% shareholding. LEBC Holdings Limited is the parent company of LEBC Group Limited ("LEBC") the UK IFA business.

As part of its market-wide review of the defined benefit ("DB") transfer market, the FCA has undertaken a review of LEBC focused on the division of the business that provides DB pension transfer advice.

Following this, LEBC has agreed voluntarily to cease the provision of DB pension transfer advice and projects, forthwith.

Advice in the DB transfer market represents c.20% of LEBC's total revenue in the current year. The cessation of the provision of advice in this area will have an impact on LEBC.  However, LEBC, excluding DB transfer business, is expecting to produce annual revenue of c. £19m with the business still reporting an acceptable underlying profit position.

In line with its successful long-term investment strategy, B.P. Marsh will continue to support LEBC as it evolves its business, which provides a range of financial solutions, for the benefit of its customers, staff and shareholders. As reported this morning, LEBC is working on a number of initiatives, some of which have already been implemented. The Group will work closely with LEBC's management team to return LEBC to the position it was in before the FCA review.

Although the current situation will reduce LEBC's valuation in the short term, B.P. Marsh has a diverse portfolio. The strong performance delivered by a number of its investee companies in recent months, as outlined below, means that the Board believes that the Company will emerge in a satisfactory position under the circumstances as regards its financial results for the six months ended 31 July 2019. As at the last published valuation (being 31 January 2019, released on 11 June 2019), the Group valued its 59.3% stake in LEBC at £35.5m.

Net Asset Value and Interim Results

The latest published Net Asset Value ("NAV") is £126.2m, or 350p per share, as at 31 January 2019. The NAV per share is calculated based upon the total shares in issue of 37,478,077, and then excluding 1,461,302 shares held in a management incentive scheme as these shares are subject to performance criteria which have not yet been met and are non-dilutive at this time.

Although the current situation will reduce LEBC's valuation in the short term, B.P. Marsh has a diverse portfolio and the strong performance delivered by a number of its investee companies in recent months means that the Board believes that the Company will emerge in a satisfactory position under the circumstances as regards its financial results for the six months ended 31 July 2019.

The interim results to 31 July 2019 and the updated NAV will be announced on Tuesday 15 October 2019.

Cash Balance

At 31 July 2019 the Group's cash balance was £1.4m. In light of this, the Board explored short, medium and long term funding options to improve the cash balances of the Company, in order to take advantage of any new investment opportunities. 

Having reviewed all the options available to the Group, and given the market wide volatility, the Group entered into a £3m 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 cash at an interest rate of the higher of 4% or the UK 1-month LIBOR plus 3.25% and is available to be drawn down until July 2020.

The Board considers that these are commercially advantageous terms, compared to other avenues of funding available. 

Follow-on Investments and Funding

Nexus Underwriting Management Ltd ("Nexus")

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

In addition to the facility from the Company, Nexus has secured an additional £14m loan facility from funds managed by HPS Investment Partners, LLC ("HPS"). HPS is a leading global investment firm.

The funding provided by both B.P. Marsh and HPS resulted in Nexus securing a total of £16m in new loan facilities, in addition to the £30m of loan funding secured from both B.P. Marsh and HPS in July 2017.

Nexus has continued with its acquisition strategy during the period. Most recently, on 30 July 2019 Nexus acquired Plus Risk Limited ("PRL"), a London based Financial and Professional Lines MGA.  

PRL provides Management Liability and niche Professional Indemnity Insurance. PRL was founded in 2017 and its underwriting team is comprised of James Rasmussen and Neil Ede, who will continue in the business post transaction. James Rasmussen and Neil Ede will become shareholders in Nexus.

In April of this year Nexus acquired Credit & Business Finance Limited ("CBF"), a specialist trade credit broker, and Capital Risks MGA Limited ("Capital Risks"), a Warranty and Indemnity MGA. The management shareholders of CBF and Capital Risks became shareholders in Nexus as part of the acquisitions.

Following the acquisition of CBF, Nexus is now the leading independent UK trade credit broker, fulfilling one of its strategic goals and uniting the two biggest producers of 'new to market' business, and will hold a market share in excess of 10% of the estimated £350m Gross Written Premium for the UK trade credit broking market.

Nexus are forecasting an adjusted EBITDA of c.£20m over the next 12 months, which would represent an increase in EBITDA of 45% compound per annum since B.P. Marsh's investment in August 2014.

Portfolio Update

UK

CBC UK Ltd ("CBC")

CBC, the London based Lloyd's broking business, continues to demonstrate strong growth. EBITDA increased by 40% in 2018, and is on target for increasing at the same rate in 2019. CBC continue to strengthen its product offering with strategic hires, and have recently hired an experienced Financial Products team.

EC3 Brokers Limited ("EC3")

In December 2017, the Group invested in EC3, an independent specialist Lloyd's broker and reinsurance broker.

Since investment, EC3 has grown its top line revenue from c. £9m to a budget of approaching £14m in the year to 30 December 2019, whilst also maintaining a good underlying profit margin.

Over the same period, B.P. Marsh has worked with EC3 to augment its management function, and further develop its product offering to deliver top and bottom-line growth.

The Fiducia MGA Company Limited

In November 2016, the Group invested in a UK Marine Cargo Underwriting Agency, established by  CEO Gerry Sheehy and based in Leeds.

Fiducia is a registered Lloyd's Coverholder which specialises in the provision of insurance solutions across a number of Marine risks including, Cargo, Transit Liability, Engineering and Terrorism Insurance

Since Fiducia commenced trading, it has grown from a start-up position to producing in excess of £10m in Gross Written Premium in the year ending 31 December 2019, across its specialist lines of business.

Walsingham Motor Insurance Ltd ("Walsingham")

Walsingham, the London-based motor fleet MGA, continued its strong progress in 2018 reporting £19.8m in premium and generating EBITDA for the year of £0.6m. 2019 has seen further strong growth, reporting £21.5m in premium in 10 months' trading and EBITDA expected to be significantly ahead of 2018.

Canada

Stewart Specialty Risk Underwriting Ltd ("SSRU")

SSRU, the Toronto based provider of specialty insurance products to a wide array of clients in the Construction, Manufacturing, Onshore Energy, Public Entity and Transportation sectors, commenced operations in February 2017.

Since the Group's investment, SSRU has increased its Gross Written Premium  from nil to a forecasted position of over CA$9m, in the year ending 31 December 2019, whilst also producing profit and dividend yield.

Spain

Summa Insurance Brokerage, S. L. ("Summa")

Summa is a regional consolidator of insurance brokers in Spain, with 19 branches across Spain. 

Whilst the Spanish insurance market continues to be a challenging place in which to operate, Summa continues to deliver c. €45m of annual premium and an annual adjusted EBITDA of over €1.2m.

The Group was also pleased to note that Summa had achieved Lloyd's coverholder status, which will bolster its product offering going forward. 

USA

XPT Group LLC ("XPT")

The Group invested into XPT in June 2017, the U.S. based specialty lines insurance distribution company.

In July 2019, XPT' acquired Klein & Costa Insurance Services ("Klein & Costa"), an MGA and surplus lines broker located in Santa Ana, California.

Established in 2001, Klein & Costa provides broking services in the areas of Professional Liability and Speciality Lines, and as an MGA it represents three carriers with broad delegated underwriting authority.

Following the acquisition, Klein & Costa became part of WSSIB, XPT's wholesaler and MGA based in Texas and California, and began trading under the WSSIB name and provided WSSIB with entry into a new location and introductions to Klein & Costa's retail producers.

Since XPT commenced trading, it has grown from start-up to $165m in Gross Written Premium and is approaching $3.9m of adjusted EBITDA in the current financial year ending 31 December 2019.

XPT continues to have an active pipeline of new investment opportunities and is in advanced discussions with a further significant value accretive acquisition opportunity.

Australia

B.P. Marsh's existing investments in Australia [ATC Insurance Solutions PTY Limited, Sterling Insurance PTY Limited and, MB Prestige Holdings PTY Limited] continue to perform well in an insurance market which although challenging from a performance perspective, has presented these companies with growth opportunities. As such premium income and profitability has increased across the board.

On the one hand this is in response to a more positive insurance market internationally, but it also underlines the intrinsic quality of these companies and their management teams.    

Additionally, the Group was pleased to note that all of the Company's Australian MGAs were able to renew their underwriting capacity support with Lloyd's and the international insurance markets.

As regards the Company's newest investment, Ag Guard PTY Limited , although a start-up, which will no doubt face initial challenges, we believe that the management team we have backed, with our investment support and underwriting support from Munich Re, has a strong growth horizon looking to the future. 

New Investment

Ag Guard PTY Limited ("Ag Guard")

On 15 July 2019 the Group invested in Ag Guard, based in Sydney Australia.

The Group subscribed for a 36% equity stake for an initial cash consideration of AU$1.47m (c.£823,000). Further consideration of up to AU$1.13m (c.£628,000) may become payable, subject to performance. 

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.      

It is expected that the Group's investment in Ag Guard and the backing of a strong and experienced management team will enable Ag Guard to become a serious market player over the next five years.

Dividend

In July 2019 the Group paid a dividend of £1.714m to shareholders, equating to a dividend per share of 4.76p.

Directorate Change

On 23 August 2019, the Group announced that Camilla Kenyon will be resigning her position as Executive Director, with effect from 31 August 2019.

Millie has worked with the Company since 2006. The Board is grateful for her contribution as an Executive Director since 2011.

As part of Millie's departure from the Group, an internal restructuring process was undertaken, with her role being divided amongst the existing Management Team. The Investor Relations function will sit with the Chairman and Managing Director, and New Business will be assumed by the Investment Department.    

New Business Opportunities and Outlook

In addition to making the investment in Ag Guard during the Period to 31 July 2019, the Group continues to look at a number of MGAs and Brokers both domestically and internationally, alongside a number of interesting opportunities outside the insurance space.

For further information:

B.P. Marsh & Partners Plc	www.bpmarsh.co.uk
Brian Marsh OBE	[phone]
Nominated Adviser & Broker Panmure Gordon (UK) Limited
Atholl Tweedie / Erik Anderson	[phone]

Notes to Editors:

About B.P. Marsh & Partners Plc

B.P. Marsh's current portfolio contains nineteen companies. More detailed descriptions of the portfolio can be found at www.bpmarsh.co.uk.

Since formation over 25 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 at least five years.

Prior to Brian Marsh's involvement in the Company, he spent many years in insurance broking and underwriting in Lloyd's as well as the London and overseas market. He has over 30 years' experience in building, buying and selling financial services businesses, particularly in the insurance sector.

Alice Foulk joined B.P. Marsh in September 2011 having started her career at a leading Life Assurance company. In 2014 she took over as Executive Assistant to the Chairman, running the Chairman's Office and established herself as a central part of the management team.

In February 2015 she was appointed as a Director of B.P. Marsh and a member of the Investment Committee. In January 2016 Alice was appointed Managing Director of B.P. Marsh.

In her position as Managing Director, Alice is responsible for the overall performance of the Company and monitoring the Company's overall progress towards achieving the objectives and goals of the Company, as set by the Board.

Dan Topping is the Chief Investment Officer of B.P. Marsh, with over a decade of experience in the financial services sector. Dan graduated from the University of Durham in 2005 and is a member of the Securities and Investment Institute and the Institute of Chartered Secretaries and Administrators. Having spent two years at an independent London accountancy practice, he joined the company in 2007. He was appointed as a Director in 2011 and promoted to his current role in 2015.

Dan is a standing member of the B.P. Marsh Investment and Valuation Committees and currently serves as a Board Director across the portfolio.

Jonathan Newman is a Chartered Management Accountant and is the Group Director of Finance and has over 20 years' experience in the financial services industry. Jon graduated from the University of Sheffield with an honours degree in Business Studies and joined the Group in November 1999, following two years at Euler Trade Indemnity and two years at a Chartered Accountants. Jon is a Member of the Chartered Global Management Accountants, the Chartered Management Accountants and the Chartered Institute of Securities and Investment.

Jon was appointed a Director of B.P. Marsh & Company Limited in September 2001, and Group Finance Director in December 2003 and was instrumental in the admission of the Group to AIM in February 2006. Jon is a member of the B.P. Marsh Investment and Valuation Committees and currently serves as a Nominee Director on the Boards of three Investee Companies, and provides senior financial support and advice to all companies within the Group's portfolio as well as evaluating new investment opportunities.

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