B.P. Marsh & Partners (LSE:BPM) — Interim Results

0:01 Good morning, ladies and gentlemen, and welcome to the BPMARTIAN PARTNERS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so, and these will be

0:32 available via your investor meet company dashboard. Before we begin, I would like to submit the following poll, and I would now like to hand you over to the executive management team from BPMARSH and PLC, Dan. John, good morning. Morning, all. I'm pleased to welcome you to the BPMARSH interim results to the 07/31/2023 presentation. As usual, presenting on these interim results is myself, Dan Topping, Chief Investment Officer and John Newman, our CFO. We're very pleased with these results, and I would like to thank all the members of the BPMash team and the wider portfolio for their efforts in allowing us to achieve them. The key highlights being set out on Slide three. Net asset value increasing in the period 203,500,000, an increase of GBP 14,000,000 or 7.3 percent over six months or GBP 23,700,000 or 13.2% over a year an 8.6% increase in equity portfolio in the period or 12.3% excluding Kentro, which remained flat due to the exchange and completion on that investment and consolidated profit before tax in the period of GBP 15,600,000, delivering a total shareholder return for the period of 7.9%, which has left us with available capital of GBP 51,500,000 currently or 4,300,000 as at thirty first July twenty twenty three.

1:58 We declared a special dividend of GBP 1,000,000 and a further dividend of GBP 6,000,000 proposed being paid in 2,000,000 annual installments from 2024. We're delighted with the overall performance of the group in the period, which is a continuation of our previous results as at 01/31/2023. Slide four shows our consistent long term net asset value growth, which I believe speaks for itself. And Slide five outlines our dividend strategy, which I shall discuss in further detail later in this presentation. A significant event for the group in the period was the sale of Kentro, as outlined in Slides six and seven. The group sees its investment and dispose of Kentro as a prime example of our unique investment approach and our ability to produce bespoke investment situations, which should provide the opportunity for significant returns.

2:53 As you will note, we initially acquired a 5% stake for GBP 1,500,000 in what was Nexus Underwriting Management, a profitable independent underwriting agency specializing in financial lines and trade credit insurance. Since then, what was Kensho and is now what was Nexus and is now Kensho has leveraged BPMARSH's experience and skill set and has completed circa 20 acquisitions and grown its revenue and profitability by approximately 10x, with adjusted EBITDA growing from circa GBP 2,000,000 at the time of our investment to north of GBP 20,000,000 at the time of our disposal. We will end our partnership with Kentrail as the largest single shareholder, having provided an aggregate of GBP 15,000,000 in equity funding, which has returned the group GBP 51,500,000.

3:39 Completion took place post period end on 10/09/2023, which which delivered an IRR of 23.66% and a money multiple on the equity invested of 3.41x over a nine year investment period. Before moving on to how we intend to utilize these proceeds, I thought it made sense to provide an overview of how Kentro has grown since the group invested in 2014, and I believe Slide seven shows this in respect of the key milestones and valuation increases. Turning to Slide eight in terms of what we intend to do with the Kentro proceeds. The group confirmed it intends to return 7,000,000 of the proceeds to shareholders via dividends. A special dividend of 1,000,000 has already been declared and will be paid in November and a further 6,000,000 over three years from 2024.

4:29 It's our ongoing aim to strike a balance between returning funds to shareholders and retaining funds to grow NAV, and I believe that the Kentro disposal adequately displays how we intend to do that. Regarding dividends. By 2028, 18,600,000 would have been distributed since 2010, equating to GBP 53.56 per share or 38% of our flotation price of GBP 1.40 per share. We believe this demonstrates long term rewards for our shareholders for their patient support of the company whilst also providing significant firepower for new investments and to support the existing portfolio, which has delivered exceptional NAV growth. In terms of new business, turning to Slide nine, the group has an exciting pipeline of new investment opportunities, which we will have the opportunity to execute on subject to us being able to attain satisfactory terms of investments.

5:24 Whilst we expect an increase in new business proposals on the back of the disposal of Kentro, it's our intention to maintain our measured approach to new business without the need to feel obligated to deploy cash too quickly or change our modus operandi. In the period, the group undertook two new investments, Pantheon Specialty Limited and Verb Risk Services. Pantheon, on Slide 10, was an opportunity to once again partner with Rob Dowman, an individual with over thirty years' experience in the sector, having previously been joint CEO of Besso Group and Besso Limited since 2015. B. P. Marsh previously being a shareholder of Besso Limited exiting in 2017. Rob and his team are recognized as leading London market casualty brokers specializing in complex liability placements throughout the world.

6:16 And given our long association with Rob Dam, and this provided BPMARSH with an excellent opportunity to partner with them once again to hopefully deliver exceptional long term shareholder returns. Verb Risk Services on Slide eleven is an underwriting agency specializing in professional and management liability business for the insurance industries in The USA, Canada, Bermuda, The Cayman Islands and Barbados. The experienced management team, Scott Simmons and Anna Lambert, had operated as a unit within another business, but B. P. Marsh offered them the support to undertake a management buyout and delivering management a majority shareholding in their own in their business, which they previously didn't have. Both of these investments are examples of BPMARSH's style of investment approach, offering unique structures, attracting motivated and entrepreneurial management teams.

7:08 Turning to our aggregate insurance position, Slide 12. I suppose this demonstrates the aggregate size of the premium within the portfolio. And as previously mentioned by me, the market often says that BPMARSH walks softly but carries a big stick, and I suspect this is what they're meaning to in terms of the 1,750,000,000 amongst the BPMash portfolio companies. The full insurance portfolio is set out on Slides thirteen and fourteen, and I thought I'd highlight some noticeable performers within that. XPT, Slide 15, is now the group's largest investment, which is no mean feat given we invested in 2017 as a start up, and this business now produces over circa $700,000,000 of GWP, has made 14 acquisitions today at 19 office locations throughout The U. S. With over two fifty employees, which, when we invested, was four individuals with no office and a business plan.

8:06 Over the course of the period, the group lent XPT a further 4,900,000,800,000, which has already been repaid. The majority of this funding is used to allow XBT to continue its M and A strategy. Slide 16. CBC continues to deliver excellent growth and was the biggest riser within the portfolio for the period. This has allowed it to grow. This growth has been delivered by organic and new hires in the period. The group led CVC an additional GBP 1,500,000, which together with their own funds allowed CBC to repay its loan facilities with its bank, Coots and Company. Additionally, post period end, the group lent an additional 800,000, which allowed CBC to exercise a call option with the group over 5.9% shareholding in CBC, which was owned by the group. These shares were canceled.

9:07 As a recap, the group originally invested in CBC in 2017. And since then, that time, our valuation has increased significantly, with the group's current equity stake now being worth over GBP 30,000,000. And over the period in question, CVC's value has increased by GBP 11,300,000 or 59%.

9:25 Other notable performers across the portfolio are ATC, Slide 17 Lilly Plumber Risk, Slide 18 and Stuart Specialty Risk Underwriting, Slide 19. ATC has grown to one of the largest Lloyd's underwriting agencies in Australia, having more than doubled its GWCP since we invested in July 2018. Lilly Plumber Risks, Slide 18, continues to grow and expand its product offering. Whilst established to be a marine broker, the business has now developed into a number of other niche areas, including political violence, terrorism and North American property. The performance of Lilly Plumber Risk has allowed it to repay just over £1,000,000 to the group during the period via redemption of preference shares and repayment of loans.

10:13 The group's equity investment of 308,000 is currently valued at 8,860,000. Stuart specialty risk underwriting, Slide 19, also showing impressive growth, producing 75,000,000 of Canadian dollars in 2022. This will grow to above 83,000,000 Canadian dollars in 2023, and we expect it to surpass a 100,000,000 Canadian dollars of GWP in 2024. From humble beginnings, an equity investment of £17 by BPMARSH alongside a 400,000 or so low. SSIU has become one of the largest donor operated underwriting agencies in Canada, which we now value in excess of GBP 11,000,000, just under GBP 12,000,000.

11:06 On the subject of the wider market, we've included, on Slide 20, our high level overview of where pricing sits on a premium basis. Property premium growth is showing no sign of abatement, whilst casualty market rates continue to rise, although at a slower pace. The noninsurance investment currently is LEBC, which we detail on Slide 21. I think we've discussed this previously and the rationale for supporting this investment. That rationale has not changed, and the management team led by Derek Miles continues to take the group forward, and we fully support Derek Miles and his team in in continuing to deliver the turnaround at LEBC.

11:54 And drawing my presentation to a close, as I said at the beginning, we're delighted with the results achieved thanks to our partnership with our portfolio companies. As our partnership with Kensho has drawn to a close, the results do demonstrate that we have an ongoing portfolio with the ability to to produce further significant growth, noting that the growth in the underlying portfolio without Kensho was 12.3% in the period and 23.8% over the last twelve months. The sale of Kentro, whilst transformational for the future, does not lead to the need or desire to change our modus operandi being, but we continue to identify businesses with strong management teams and good growth potentials, which we can help fund, support and develop so they can deliver on these growth opportunities, which, in due course, we believe, produces returns on our investments to our shareholders via a blend of ongoing equity and NAV growth within the portfolio and regular returns of capital to shareholders.

12:51 Given the strong cash position, our current portfolio and the strong pipeline of new business opportunities, we believe that the group is in a very positive position moving forward. We all, as a team at BPMark, are excited by the future, I, as Chief Investment Officer, shared a sense of environment excitement given the opportunities available to us. Such opportunities should have a positive outcome on the company and, ultimately, the share price and shareholder returns, which in the long run is the scorecard for a listed business. Before handing over to John and hopefully repeating myself for the final time, all of this could not be achieved without the team at BPMARSH and our partners within the portfolio to whom we are particularly grateful. I can now hand over to John to talk through in more detail his thoughts on the key financial performance indicators within our results, after which we will deal with any questions.

13:41 Thank you, Dan. So I'm pleased to present the key financial highlights for the six month period to thirty first of July twenty twenty three. So overall, our NAV increased by 14,000,000 or 7.3% for the period to 203,500,000, which is equivalent to 567.3p per share or 556.3p on a diluted basis. So that equates to a total shareholder return of 7.9% for the period, including the dividend of a million pounds paid in aggregate in February and July of this year. Overall, the group has delivered a consolidated profit before tax of 15,600,000 for the period. Whilst this is 8% lower than the prior year period, this was due to foreign exchange movement. The prior period benefited from 5,800,000 in foreign exchange gains in the valuations, whereas the current period saw a 3,800,000 reversal of those gains. Adjusting for this, the comparison would be 19,200,000 versus 11.2 in the prior period, an increase of 73%

14:45 excluding FX movement. The majority of the profit relates to the increase in valuations of the investments with the equity portfolio rising by 8.6% after adjusting for realizations and additions. And that now stands at a 185,800,000. One of our core strategies is to seek to ensure that the yield from that portfolio covers our operating expenses so that investment cash isn't depleted by working capital. On On an an underlying basis, the profit before tax was 800,000 for the period

15:15 compared with 700,000 in the prior year period. A final dividend of 1.39p per share or 500,000 was paid in July, bringing the total distribution to 2.78p per share or a million, in line with the previous year. Turning to slide 24. Since flotation, the group has achieved compound growth of 8.9 per annum and 11.8% since inception. That is after all expenses, tax, dividend distributions, and excluding any capital raised. So this slide sets out the key investments, realizations, and loan portfolio movements during the period. We invested 400,000 in equity this period, which was the new investments in the NBO of services and a nominal investment in equity in pantheon specialty.

16:04 We also received 800,000 in proceeds from realizations during the year. Lily Plummer bought back 700,000 of redeemable preference shares, and we received an additional 100,000 from previous sale this summer. Turning to the loan book. This stood at 17,800,000 at July 31 compared with 11,500,000 at January 23. We granted 8,200,000 in new loans during the period to our portfolio, 4,900,000 to XPT in The US to fund the further consideration payments on acquisitions, 2,000,000 to CBC, which was used to fund the new MGA investment and repay bank debt, and 700,000 to Denison and Partners PARTNERS PARTNERS and 600,000 to Verve for working capital. 1,600,000 of loans were repaid during the period, 800,000 from XPT from the loans we provided earlier in the year, 500,000 from Fiduciary, and 300,000 from Libby Plummer.

17:02 And given that we don't set exit clauses and are a medium to long term investor with an average holding period of over seven years, we often structure our investments as a mixture of debt and equity, although never just debt. This enables a yield to be received on the investment to cover our operating costs, and debt repayments help to replenish our capital funds rather than having our capital tied up until an eventual exit. We do have a slide on slide 30 in the appendices that sets out all of the loans in details. All our loans are valued at par. The average interest rate charged for the period was 9.9%, which was up from an average of 8.6 charged in the year to 01/31/2023.

17:48 At the period end, we have 4,300,000 in cash, down from 12,100,000 at January 2023 due to the investments in loans are set out and following the million dividend paid and 700,000 in share buybacks.

18:03 Turning to slide '25. There have been a number of significant developments since the period end. Regarding investments, we've provided 4,600,000 in new loans, 3,000,000 lent to Pantheon for working capital as they continue to hire new staff and producers. 800,000, as Dan said earlier, was lent to CBC to fund the exercise of a share option whereby whereby we sold shares back to CBC, which were then canceled. 500,000 was lent to Brown and Brown as part of the Kentro South for specific legal matters outstanding to enable completion, and 300,000 was lent to LEBC Holdings to part finance the acquisition by Aspira of LEBC Group's assets. The loan portfolio balance is now at 22,400,000, approximately 11% of our NAV.

18:51 October, we received the cash proceeds from the sale of Kentro and now have 51,000,000 of liquidity prior to distributions. Based on the current share price, there's a significant discount to NAV.

19:06 So slide 26 to summarize. Why invest in BPMush? 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. We have have achieved 8.9% compound growth since flotation and 11.8 since inception after all costs and distributions through identifying excellent growth opportunities and delivering added value and return to shareholders as demonstrated by growing the NAV to now over 200,000,000. We've now got 51,000,000 in cash pre distributions.

19:52 We've demonstrated that we can successfully realize investments at or above prior valuations with strong exit performance over the last eighteen months with sales of Walsingham Solar and now the exceptional performance with the sale of Kentra. We have a strong pipeline of investment opportunities both within our existing portfolio for continued growth and expansion and in new opportunities, and we consider the current discount to diluted NAV to be unwarranted. So this concludes our formal presentation. I would now like to invite any questions that you may have. And if I may just jump back in there. And thank you very much indeed for your presentation this

20:40 submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard. John, Dan, as you can see, we have received a number of questions throughout your presentation this morning. And thank you to all of those on the call for taking the time to submit their questions. But Tim, if I may now hand back to you, sir, just to share the Q and A session with the team, and then I'll pick up from you at the end. Thank you. Perfect. Thanks, Jake. So we've had a few questions both on and off the platform regarding share buybacks. John, do you want to group this together and take those?

21:26 Yeah. Thanks. So, obviously, you know, the the board has continues to consider the most appropriate and, I suppose, cost effective mechanism for shareholder distributions of this size. As Dan said earlier, the aim is to strike a balance between investing for the long term capital growth and providing shareholders with a meaningful return in the short and medium term. I I suppose the key point is those discussions are ongoing, and the board will provide further information on that in due course. Thanks, John. Next question from from James. Are changes in the regulatory environment affecting BPMartian decisions you make?

22:19 Well, I think the regulatory environment is constantly changing. It realistically affected BPMR since what was the FSA and now with the FSA alongside the PRA and its regulation of the financial services sector and the insurance sector that we, you know, focus on. But generally speaking, no. We actually welcome regulation. We think it's good for the industry. It provides framework to operate in, you know, agreed systems and controls. It's neutral to us. We we assume all our investee companies will operate within the regulatory framework. Thank you. Another question. How much competition do you see for new deals? Has this competition increased over the years?

23:05 To be fair, we would say we were unique in our investment area in that sort of nought to 5,000,000 investment gap. But we sit in the mid market private equity investors don't fish in that pond because it's too small, and their cost base is probably a bit too large to deal with it. And angel investors, and the angel investors, you know, don't like going into, generally speaking, there's a technical nature of insurance broker and distribution. So from our standpoint, we don't see any competition for investments because of the way we operate with our venture capital style investments, but using a private equity style model. That being said, in discussing it with John, he pointed out that actually there's more competition when our deals come to market when management ultimately wants to exit.

23:56 That next tier, we're seeing a lot of a lot of, you know, more interest from other buyers. Thanks, Dan. What are the key things you look for when investing in new businesses, and how many opportunities do you turn down? First slide nine for the period, we saw 41 opportunities, and we did two, so 39 for the six month period. And that's probably, by and large, consistent with what we generally see. In terms of what we look for, you know, an entrepreneurial credible management team and a credible business plan because of our focus on the the insurance distribution sector, we like to think that we've got a pretty good handle on what business plans look like in specific areas of business and what management teams are capable of. And therefore, it ultimately begins and ends with the people that come to us as they'll they'll be our long term partners.

25:05 Thank you. The question, what is the average term of your investment holdings? It's just over seven years. Great. Thank you. How are higher interest rates affecting your business and investments? In terms of our business, directly, so we have a, a large loan portfolio. We're up to 22,400,000. We, often have, for the majority of them, they're index linked to The UK base rate. So with a floor so if rates drop down, the floor is usually around about 6%, then we're protected.

25:58 And as rates go up, we earn more interest income. In terms of the investment portfolio, well, higher interest rates obviously mean for those that have debt, They're paying more, but we aren't particularly exposed with our investment portfolio to large levels of leverage. The largest one was Kentro, which obviously is very successful sale. So that's you know, it on a on a smaller scale, it impacts on cash as they're paying it out, but all of our businesses or the vast majority are growing at far greater rates than interest rates are increasing.

26:45 So we haven't really seen an impact. Great. Thank you. Another question. Could you please walk us through the process of valuing your investments and calculating your NAV? Are there any independent third parties involved? So we have a valuations committee. We do a formal valuations process twice a year for the interims and final results. It's obviously a rather rigorous process involving lots of information that we get up from all of our investee companies review. There are a number of people on the valuations committee who will go and look at things independently, including one of our non execs who is a, chartered accountant with a, a long background in, being a chartered accountant of the insurance intermediary.

27:45 And, we then have those committees. We look at number of different metrics, including sort of recent fundraisings. We look at what's happening in the market. We apply a discount based upon the fact that ours are private and not publicly listed. And we look at multiples in the market and where the long term trend. We tend not to focus on very short term increases in multiples because, you know, as we say, we've got a over seven year average holding period. I think the proof in the pudding in terms of valuations and impact on the NAV is where we exit. You know, we have a a long term strong track record of exiting at or above our investment valuation and, you know, sort of we can go back all the way through our investments. I think I can only recall one where we've made a change, and that was a significant one just as the global financial crisis hit, where we we downgraded it just before to do with the sale.

28:59 But the track record speaks for itself. In terms of independent, our auditors, review the valuations at the interim period akin to a audit process without it being a formal audit process, to ensure, that we provide them justification. They provide, quite a rigorous challenge on our assumptions. They check the calculations, and that goes through a full audit process, at the year end. Hopefully, that answers that. Thanks, John. Another question. How do you see the share price developing bearing in mind the discount to NAV?

29:48 Without wanting to give forward guidance on the share price, looking at Slide three and the share price performance since 2013 over 2023, if we can continue to see the graph go in that direction at no less than that rate, I think the performance of the portfolio previously demonstrated the ability of the share price to go up such as that. And I think the current portfolio and the new business pipeline should, all things being equal, allow for further increases in the share price over the mid to long term. I think the the other key point is, you know, we continue to grow the NAV, and that will be the the single biggest metric.

30:37 Thanks, John. We've had some questions about investment strategy in relation to some of the investments as well. Dan, you're able to give sort of an overview of the investment strategy? Sure. I mean, the strategy is long term investors to try and deliver as profitable returns to shareholders as we can. I think that certainly our track record says we can do that with like the likes of Kentro, where it was a nine year investment and it was a phenomenal return for the shareholders and the company. But, you know, we're not all not all investments are gonna be Kentro and those ones that don't deliver that return, we manage equally as aggressively to to make sure that ultimately we we try and get the return to the shareholders.

31:24 Yeah. I think the the long term position, you know, we we we are in a risk business, and it's about how you manage that risk. And I think sort of our overall long term performance shows and how we exit that. Yeah. We do we don't always have successes. It's about just as much how you manage, those that don't quite so well. And even with our most successful investments, we have had even with Besso and Hyperion. We have had moments, you know, where we've had to significantly downgrade those investments. But we I suppose as part of our long term partnership with these firms and the flexibility, that gives us the opportunity to actually actually work work with with them them and to deliver positive outcomes.

32:20 Thank you, Dan. Thank you, John. And that's the q and a we have. Jake? Perfect, Tim, John, Dan. Thank you very much indeed for being so generous of your time there and addressing all of those questions that came in from investors this morning. And of course, as usual, 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, John, perhaps before really just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourselves and the company, if I could please just ask one of you for a few closing comments just to wrap up with, that would be great. Okay. Thanks very much. I think we, again, echo your thanks to all the listeners on this presentation.

33:07 We thought it was an exceptional set of results again. The whole team at BPMarch is, you know, to be thanked and our investment company portfolio partners. Thank them for their efforts in delivering the results that underpin our NAV. That's great. And, John, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of BPMARSH and PARTNERS PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.