Trading Update

RNS Number : 2620Y

B.P. Marsh & Partners PLC

08 September 2020

 

8th September 2020

B.P. Marsh & Partners Plc

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

Trading Update

B.P. Marsh, the niche 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 2020 (the "Period").

Covid-19

Our highest priority remains the health and safety of our staff, alongside supporting our partners throughout these unprecedented times. We have been impressed by the skilled dedication and competence demonstrated by all of our staff in overcoming any inconvenience caused by working from home during the Covid-19 pandemic.

Dividend

On 31 July 2020 the Company paid a dividend of 2.22p per share to all shareholders on the Register as at 26 June 2020 and continues to seek to balance rewarding loyalty to its shareholders and retaining future investment capital in its considerations regarding future dividend policy.

Cash Balance and Loan Facility

As at 31st July 2020 the Group had a cash balance of £1.2m in addition to an undrawn loan facility of £3m from Brian Marsh Enterprises Ltd.

New Business Opportunities and Outlook

The 6-month interim period closed with a total of 22 new opportunities having been presented to the Group, compared to 49 over the same period last year. Of the 22, the majority were in the insurance sector. Whilst this is a decrease to the same stage last year, this is to be expected given the challenges that were created throughout the period, due to Covid-19.

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.

The Group continues to focus on investing in niche SME sectors backed by experienced and capable management teams, which will create long term growth and consequential value.

Portfolio Update

New Investment

Investment in Sage Program Underwriters, Inc ("Sage")

On 29 June 2020, the Group announced an investment into the American based company Sage, subscribing to a 30% Cumulative Preferred Ordinary shareholding for an equity consideration of $250,000 (c. £203,000).

Based in Bend, Oregon, USA, and established in 2019 by CEO Chuck Holdren, Sage provides specialist insurance products to niche industries, initially in the inland delivery and field sport sectors.

The investment in Sage enabled the Group to back an experienced leader to utilise his skills to build out an innovative, fast growing and profitable MGA, as well as to expand the Group's footprint in the United States.

Sage recently launched its new Worker's Compensation program for the ground delivery industry nationwide, with strong results so far. Sage will also be launching a commercial auto program, which will complement this. The already established field sports Worker's Compensation program continues to do very well with new business and an over 97% renewal retention to date.

Portfolio Developments

Specific developments within the portfolio during the Period are noted below:

Nexus Underwriting Management Limited ("Nexus")

During the Period, Nexus has expanded its Trade Credit Broking arm, having acquired a Trade Credit broking portfolio from Howden UK Group Limited in March 2020, in addition to the previously acquired businesses, Credit Risk Solutions in October 2017 and Credit and Business Finance in April 2019.

Nexus has now combined all of its Trade Credit broking operations under one brand, Xenia Broking Group ("Xenia"). The unified teams will magnify their impact on the specialist trade credit and surety market, delivering both greater scope and focus to their clients.

It is now a leading, and among the largest, specialist trade credit and surety broker in the UK, with circa 20% market share of trade credit insurance distribution. The business will develop its specialist focus by maintaining its consistently strong organic growth (approximately 15% per annum) and by acquisition, and will be targeting a growth rate of over 30% per annum.

The Nexus Managing General Agency business also continues to remain on track to hit its original budget expectation for the year ending 31 December 2020, notwithstanding the challenges that have been posed by the Covid-19 pandemic.

In February 2020, Nexus was ranked at number 78 in the 11^th annual Sunday Times HSBC International Track 200, which ranks Britain's mid-market private companies with the fastest-growing international sales.

LEBC Group Limited ("LEBC")

As previously announced, LEBC Group Limited, the trading subsidiary of LEBC, has gone through a period of restructuring following its voluntary decision to exit the Defined Benefit Transfer Advice space, following consultation with the Financial Conduct Authority and changes in advice requirements. 

LEBC's centralised investment proposition has provided a degree of stability to clients' portfolios in this time of extreme market volatility. LEBC's private client advisers have also continued to provide quality advice to individuals faced with unprecedented disruption to their lives.

This comes alongside LEBC's corporate division providing additional support to clients using the furlough scheme and helping them manage variable pension and pay calculations, so that employees' retirement plans stay on track.

Additionally, LEBC continues to roll out its digital bionic advice services and app, transforming access to advice, which is central to the future growth in the IFA sector. 

We remain confident in the LEBC management team and have offered our full support through its current challenges. B.P. Marsh believes that LEBC is well positioned to perform successfully in its area of expertise.

XPT Group LLC ("XPT")

Since the Group's investment in June 2017, XPT has acquired seven businesses across the United States and has grown from a standing start to forecasting over $300m of Gross Written Premium and approximately $7m EBITDA for the year ending 31st December 2020.

In May 2020 Western Security Surplus ("WSS"), the boutique wholesale broker division of XPT, announced the acquisition of Houston Surplus Lines ("HSL"), which is an excess and surplus lines Managing General Agent based in Houston, Texas. Founded in 1994, HSL has long-standing binding authority contracts with some of the very best A-rated surplus lines carriers, along with a solid list of brokerage markets for the harder to place risks.

Additionally, over the Period, XPT's subsidiary, W.E. Love & Associates has launched a new trucking program, named Platinum Trucking, alongside Watford Insurance Company, a New Jersey domiciled admitted carrier with A- rated paper. This new program has been created for primary truck liability insurance, where W.E. Love have identified that the needs of the market are underserved.

Australian investments:

Agri Services PTY Ltd ("Agri Services"), ATC Insurance Solutions PTY Ltd ("ATC"), MB Prestige Holdings PTY Ltd ("MB") & Sterling Insurance PTY Ltd ("Sterling")

These four Group investments based in Australia continue to perform in line with or above our expectations at the current time.

Since our investment in Agri Services in July 2019, it has increased its offering, following finalisation of a Farm Pack binding authority agreement with Great Lakes Australia (a subsidiary of Munich Re). The Farm Pack product was their final target in the initial stages of their business plan and has expanded their offering, opening the Company to the Australia-wide Agricultural market. 

ATC has continued to show strong growth. Notwithstanding the challenges due to the Covid-19 pandemic, ATC finished its 2020 financial year with EBITDA 15% ahead of the previous year, demonstrating the resilience of this business in a challenging environment.

Over the Period, MB repaid in full its loan from the Group, which was possible due to its solid and consistent performance over the last three years and a healthy cash balance. MB continues to show strong growth with Gross Written Premium up 10% on the previous year at the 6-month year to date position and profitability up nearly 20% over the prior year position.

Sterling, in which the Group has held an investment since 2013, also reported a strong financial year to June 2020, exceeding its EBITDA budget by c. 20%.

Lloyd's Broking investments:

CBC UK Limited ("CBC"), EC3 Brokers Limited ("EC3") and Lilley Plummer Risks Limited ("Lilley Plummer")

CBC continues to bolster its production side, having hired a new team dedicated to International Financial products. The team has collectively 145 years of experience in the international products sector, both underwriting and broking, and is headed up by Adrian Fox. Since they commenced their employment at CBC, this team has made great strides in expanding CBC's international footprint.

In August 2019, EC3 established a new US Property wholesale division, with the appointments of Matthew Jeffery as Managing Director and Daniel and David Jeffery as Divisional Directors. These three brothers have significant experience placing large complex risks into Lloyd's and the international reinsurance markets, with a focus on North American and international property.

In March 2020, EC3 announced the establishment of an international financial and professional lines division and appointed David Purdy as Divisional Director, reporting into James Murphy.

EC3's Dubai office is also looking to expand significantly, having recently partnered with the Dubai International Financial Centre Authority (DIFCA) to establish a group health scheme that facilitates the development of a cost-effective insurance programme for registered companies operating within the Dubai International Financial Centre (DIFC). The scheme is the first of its kind to be developed in Dubai's International Financial Centre and will be available to over 2,400 active registered firms within the DIFC, providing health insurance to over 25,000 employees.

Our latest Lloyd's broking investment is Lilley Plummer, which the Group completed in October 2019. Lilley Plummer is a newly formed specialist marine Lloyd's Broker, which launched following an investment of start-up capital from the Group of £1m. Since investment, Lilley Plummer has successfully carried out its business plan, having made a number of new appointments in Marine, Terrorism and War risks. Lilley Plummer remains on track to meet its full year budget projections.

The Fiducia MGA Company Limited ("Fiducia")

Fiducia, having launched as a start-up MGA in November 2016, with backing from the Group, continues to show strong growth and is on track to secure Gross Written Premium in excess of £20m for the current year.

Binding authorities across all areas of the business are running satisfactorily and income levels up to the end of July are slightly ahead of 2020 forecasts.

Fiducia continue to implement their business plan, in sourcing new underserved areas of the market, and through the relationships with their placing brokers and insurance carriers, developing new products to support these areas. They have recently launched a new terrorism product to this end, and are also in the process of launching a marine equipment product. Additionally, Fiducia continue with their development strategy of identifying those brokers with which they wish to partner, having in excess of 400 producing brokers supplying them with business.

Stewart Specialty Risk Underwriting Ltd ("SSRU")

SSRU continues to exceed expectations, having exceeded Gross Written Premium and revenue plans by a substantial margin in each successive year since the company began writing business in 2017.  Due to its unique "anywhere/any time" working structure and robust IT systems, SSRU was immediately able to pivot to a completely remote working model at the onset of the Covid-19 pandemic.  This gave SSRU a significant competitive advantage in the market where it trades and, combined with the tailwinds of a continued hardening market and superior trading relationships, the company was able to exceed its 2020 annual revenue budget before the end of the second quarter of the year. 

Walsingham Motor Insurance Limited ("Walsingham")

Walsingham has grown from a start-up to now writing over £26m in Gross Written Premium.

Over the Period, Walsingham have diversified their offering to adapt to the new needs that arose from the Covid-19 pandemic. Having previously written only taxi fleets, they amended their coverage to support food and shopping deliveries, as well as various NHS support work to be undertaken without the need for policy extensions.

Notwithstanding a number of cancellations that were experienced in the initial weeks of the UK lockdown, due to Walsingham's innovative and flexible approach, as restrictions eased, Gross Written Premium has increased significantly, such that the initial Covid-19 reductions have now reversed, and the business is back on track to meet its full year budget. At the same time, due to reduced traffic on the road this has resulted in significantly reduced claims frequencies over the Period. As a result, Walsingham were able to repay their loan to the Company in full, ahead of schedule.

The Group believes that its portfolio and the management teams within it are well set to continue to deliver excellent long-term growth and are currently trading in line with these expectations.

Share Buy-Backs

As has been stated previously, the Company has a strategy for undertaking small market buy-backs of its shares at times when the discount to Net Asset Value ("NAV"), based upon the most recently announced NAV, is greater than 15%.

For the avoidance of doubt, notwithstanding that the discount to NAV at which the Company's shares are currently trading is greater than 15%, the Company notes that it is currently restricted in its ability to buy back shares since, given that Brian Marsh, together with persons acting in concert with Brian Marsh for the purposes of the City Code on Takeovers and Mergers (the "City Code"), has an interest in approximately 41.85% of the Company's voting rights, any such purchase of shares would result in an obligation for Brian Marsh to make a general offer for the Company in accordance with Rule 9 of the City Code.

The Company is aware that it may seek approval for an exemption to this requirement, however at the current time the Board feels it prudent to prioritise its cash resources in other areas of the business.

Interim Results

The Group expects to report the results for the six months to 31 July 2020 on Tuesday 13 October 2020.

For further information:

B.P. Marsh & Partners Plc	www.bpmarsh.co.uk
Brian Marsh OBE	[phone]
Nominated Adviser & Broker Panmure Gordon
Atholl Tweedie / Charles Leigh-Pemberton / Ailsa MacMaster	[phone]
Financial PR & Investor Relations Tavistock	[e-mail]
Simon Hudson / Tim Pearson	[phone]

Notes to Editors:

B.P. Marsh's current portfolio contains eighteen 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 approaching ten years.

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