B.P. Marsh & Partners PLC (BPM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the B.P. Marsh & Partners Plc full year results investor presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, I would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to Chief Investment Officer, Dan Topping. Dan, good morning, sir.

Good morning, all. I'm pleased to welcome you to the B.P. Marsh full year results for the financial year ending 31st January 2024. As usual, on these results, it will be myself presenting, Dan Topping, Chief Investment Officer; and Jon Newman, our Finance Director. Set of results is our strongest since the business floated on AIM in 2006. As such, we're 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, so that's the outlook. Consolidated profit before tax for the year of GBP 43.6 million, significantly up on last year, 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 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 finance 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 of 70.68p per share or equivalent to 50% of our flotation 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 and 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 I believe speaks for itself. Slide 5 shows that the dividend strategy that we've pursued since 2010, the aggregate. We deal with this further in the presentation. The 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. At completion, which took place post year-end, B.P. Marsh received 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, the 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 an 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 investments in Kentro. Again, it shows our -- or underlines our unique approach to investment in 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 a further aggregate GBP 15 million, which allowed Nexus team to complete approximately 20 acquisitions and grow 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 of 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 with 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 receiving all its outstanding loans. We received full repayment of our outstanding loans. The sale of Aspira to Titan allow LEBC to meet all its obligations as regards [ its dealings ] with the FCA regarding its historical defined benefit pension transfer advice. The equity proceeds from the sale will be received over a 3-year earn-out 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 out, 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, 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 retaining significant firepower for new investments and also to support the existing portfolio. The group has an exciting pipeline of new investments. We talked as to the numbers in 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 recent 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 amounts we invest or this type of deal we're looking at. We believe we're the investor of choice for start-ups and SME and the insurance distribution and wider financial services sector, and 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 were recognized as leading London market casualty brokers specializing in complex placements throughout the world. Since 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 management liability in the insurance space for insurance companies, insurance sales and insurance brokers. We've backed an experienced management team, guys at Scott Simmons and Alan Lambert, they were a unit in another business, which we provided to 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. Founded by Charles D'Alton and Tom Fulford-Smith, experienced marine practitioners with a track record of building up companies. They previously had their own marine broking company, Latitude insurance brokers, which they successfully built up and sold. They've recently -- Ai Marine has recently secured Lloyd's coverholder status. So it's 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, some would term warranty and indemnity insurance. We've backed an experienced management team with over 30 years of experience in transaction liability. 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 4 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 or not evenly split, but almost evenly split between underwriting agencies and broking investments, which gives an idea, whilst we're not an extra large investor, the portfolio is quite significant from a premium standpoint. And it's not something we bang the drum 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 Risks 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 start-up in 2017. It now produces just under GBP 1 billion of gross written premium, employs over 300 people in 22 office locations across the United States and has made 16 acquisitions since we invested. 2023 was an adjusted EBITDA of GBP 15.2 million. 2024 was a budget EBITDA of in excess of GBP 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 that's developed since we invested. Over the course, 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 specialized in insurance solutions for flood risks. Turning on from there. Slide 21, ATC, an Australian underwriting agency, one of the largest Lloyd's underwriting agencies in Australia. This has more than doubled in size from 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 GBP 250 million of gross written premium with a long-term 3- to 5-year strategy of getting to GBP 0.5 billion, which we put out as one of the largest independent underwriting agency in Australia. And we certainly feel that the management team displays all the potential to deliver on that. Moving on from ATC. Lilley Plummer Risks, Slide 22. The marine -- the Lloyd's marine broker that we backed as a hive off from a separate transaction. This is now growing from just marine to nonmarine. When we invested, it had approximately GBP 0.5 million of brokerage. This has now grown 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, 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 -- GBP 19, sorry, $30, which we now value at nearly GBP 12 million. It was a start-up when we invested. It's now, for the year ending 2023, produced CAD 80 million of premium income and should surpass CAD 100 million in 2024. From one man in a business plan, this 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. In 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 what we've seen, a number of realizations, significance. 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. And by doing this, this produces returns on our investments to our shareholders, which we deliver by our combination of equity 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 opportunity should have a positive outcome on the company and ultimately, what we all are 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 I'll be 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 all. 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 has 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 the majority of the profit relates to the increase in valuations of the investment, as Dan has covered earlier, with the equity portfolio rising by 35.9% this year versus a 9.1% 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 the $36.4 million gain. In addition, we also received $800,000 in the exercise of a share option with CBC and $700,000 in 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 and Alchemy as part of the preparation for CBC for sale; GBP 4.9 million in XPT to enable them to make a new acquisition; GBP 4.7 million to Pantheon, 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 lent to them earlier in the year. So given we don't set exit clauses, we're 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 the yield to be received on the investment that covers our operating costs, and debt repayments help 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 and valued 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 January 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 there's 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 in further equity, including GBP 7.3 million in Pantheon, as Dan set out earlier. The loan portfolio has also moved significantly. It's 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 will be paid. 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're 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. The global 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 flotation after all expenses, realizations and distributions. We have just over GBP 81 million in cash pre 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.

Jon, Dan, that's great. And if I may just jump back in here. Thank you very much indeed for your presentation this morning. [Operator Instructions] But just while the company take a few moments to review those questions that were submitted already, I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor dashboard. Guys, as you can see there on the right-hand side, we have received a number of questions throughout your presentation this morning. Thank you to all of those on the call for taking the time to submit their questions. But Katie, at this point, if I may, just hand over to you to chair the Q&A with the team. If I could just ask you to read out those questions where appropriate, and I'll pick up from you at the end. Thank you.

Thank you very much, all. So the first question that we have is from a capital allocation perspective, how do you plan to use this increased cash balance?

Thanks very much, Katie. From our standpoint, I don't think looking at the capital we've got, which is meaningful and is the most we've ever had, we're going to change the modus operandi of our new investments. We're going to stick to that in terms of up to GBP 5 million for new investments. I think we'll continue to keep one eye on dividends, and we've allocated part of the cash towards that, and we'll continue to look at that. But also as the company has grown, the NAV has grown, and the balance sheet has grown in years gone by, some investments would have potentially, for want of a better word, outgrown B.P. Marsh. And we would have spoken to the management team and said, "Look, we aren't the best capital provider for you from a balance sheet perspective because you are materially larger than we can support with the cash we now have. Without changing new business, we can look at the portfolio and deliver capital to that." So for example, if you look at Kentro would be the sort of litmus test for that in as much as when we invested, it was GBP 1.5 million for 5%, which fell well within our bailiwick of investment approach. But as it grew and B.P. Marsh in fact grew, we actually deployed GBP 15 million to that and grew our shareholding to 20% as the company grew significantly in size and value. When the company was smaller, that's not something we would have been able to do. And likewise, looking to the portfolio as is, XPT, we've delivered nearly GBP 19 million to that investment. It's grown from a start-up [ staring down the gunsight ] of GBP 1 billion of premium, north of GBP 22 million in adjusted EBITDA. We wouldn't have had the firepower to support and would have probably said to the management team, "Look, we either need to sell the business or you need to find a bigger fund there." And then with one of our newer investments, Pantheon, modest initial investment to say the least in terms of equity. But since then, we provided GBP 4.5 million of loan funding, we've acquired a further 7% for GBP 7 million. So you're talking nearly GBP 12 million invested in that. But in the sort of 18 months we've been there, revenue has gone to GBP 18.3 million, and EBITDA of GBP 12 million is a very sizable and successful investment that without our balance sheet, the way it is we would -- we might not have supported in the way we have. So certainly, that's my view on how we plan to use the capital that we've realized from investments.

Thank you very much, Dan. Another question is you made 3 new equity investments during the year, including one post year-end. Can you talk more on the sectors or regions that these investments are focused on and the strategic fit within your portfolio?

I think I'll make two initial points to that. Firstly, we consider ourselves experts in investing in insurance distribution. So we don't need to learn about brokers or underwriting agencies in the same way as perhaps nonspecialist investors do. So we've got a good understanding of the sector from the get-go. In an investment approach, generally speaking, we focus 99.9% on the people we're backing the management teams. Because we've got that breadth of knowledge and experience in investing in insurance, we like to think we know what we're looking at. So that's off the bat our approach. But looking at the new investments that we set out on Slides 13, 14, 15, 16, Pantheon exemplifies this long-standing connection with B.P. Marsh. Previously, a CEO of a portfolio company that we exited was sold on and sold on again, didn't like being sold on and treated as a commodity like the personal approach that B.P. Marsh makes and came back to us. So that was, I think, a testament to our people-first approach, but it's in a North American casualty wholesale broker that we've got decades of experience investing in. Verve. Again, they were part of a larger group, but the minorities, shareholders, we were able to do a leveraged management buyout such that the 2 individuals who founded the business go from a minority to a majority in an area of business that we know well in terms of financial lines, management liability. The same with Ai Marine. We've got a good background in backing marine insurance distribution with our successful investment today within Lilley Plumber Risks, but an exceptional management team that are going to, I suspect, do very well for us. Devonshire Underwriting. A team of underwriters from a preeminent underwriting insurance company that wanted to pursue an entrepreneurial approach. B.P. Marsh being unique in terms of backing start-up management teams and insurance distribution clearly appealed to them. So I mean it's not a strategic fit. Our strategic approach is that we back entrepreneurial people in insurance distribution that we think have the intellectual capacity to drive businesses forward.

Thank you, Dan. We have a technical question about LEBC. However, we'll respond to that following the meeting in writing. Therefore, we just have one more question, which is how sustainable is the level of NAV growth given the current market conditions?

I'll answer briefly and Jon can answer this. I think it's sustainable. I think the portfolio is very strong. Clearly, we've had an exceptional year and therefore, not everything goes up in a straight line. But our approach to investing and the way we develop our portfolio suggests that it is sustainable.

I suppose the only thing to add to that is we continue to see the multiples for these businesses growing each year. We haven't changed our multiples and therefore, there are opportunities there as well.

Great. Thank you very much both.

Guys, perhaps if I just jump back in there. And Dan, Jon and Katie, thank you very much indeed for being so generous of your time in addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But Dan, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

Look, it's a tremendous set of results. We're delighted with them. It's a continuation of how the business has been growing in the past years, decades, so to speak, and we've got a team at B.P. Marsh that is fully capable of growing the business and the share price ultimately in the same way. And that's what we're focused on. I would add that it's the team at B.P. Marsh, but also the wider team within the portfolio that all the thanks need to go to. And finally, we're delighted with the results.

Perfect. That's great. Dan, Jon, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure would be greatly valued by the company. On behalf of the management team of B.P. Marsh & Partners Plc, we would like to thank you for attending today's presentation. That now concludes today's session, so good morning to you all.