B.P. Marsh & Partners (LSE:BPM) — Full year results presentation

0:01 Good morning, ladies and gentlemen, and welcome to the BPMARSH and Partners PLC Full Year 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 is appropriate to do so, and these will be available via your investor meet company dashboard. Before we begin, if I may, I would like to submit the following poll. And if you could 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. Good morning, sir.

0:47 Good morning. Morning, everyone. Thanks for joining us. We're looking forward to presenting on our results, and I think we'll move straight into the presentation and put it up on screen if we can.

1:00 Alright. Pleased to welcome you all, as I said, to our full year results, 01/31/2023. That'd be myself, Dan Topping, the Chief Investment Officer and John Newman, our CFO, presenting on these results. We're very pleased with these results, and I'd like to take this opportunity to thank all the members of the BPMash team and the wider portfolio for their efforts in allowing us to achieve them. The key takeaways for our results on Slide three: consolidated profit before tax of £27,600,000 £8,200,000 up on our prior year or 42% increase net asset values of $189,500,000 $29,000,002,900,000 increase on prior and regarding portfolio, a 19.1% increase in the value of the equity portfolio year on year, providing a total shareholder return for the period for the year of 14.4%.

1:56 Presently, we've got available capital of £5,200,000 for investments. As I said, we're delighted with the overall performance of the group, which is a continuation of our solid year on year growth recently during an extended period of wider instability. Given the significant post year end events in advance of these results, I thought it made sense to change up our usual order of presentation and focus on the sale of Kentro and the proposed use of the proceeds. Slides six and eight. In talking about Kentro, it's hard to avoid the conclusion that this investment in Spurs is a prime example of our unique investment approach and our ability to produce bespoke investment opportunities, we provide the opportunity for significant returns. As is noted, we initially acquired a five percent stake in Nexus for £1,500,000 which was then current Kensho was previously called Nexus Underwriting Management, a profitable underwriting agency specializing in financial lines and trade credit insurance. Since then, Nexus, now KENTRO, leveraging BPMARSH's experience and skill sets, completed circa 20 acquisitions and grown its revenue and profitability by approximately 10x, with adjusted EBITDA growing from circa £2,000,000 to north of £20,000,000 We will end our partnership with the management team at Kentro as the largest single shareholder in the business, having provided aggregate funding of £15,000,000 in equity.

3:20 And this will provide upon regulatory approval, our consideration will be £51,500,000 representing a 25% IRR 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 the recent portfolio disposals we've made, which is Slide seven. As you'll note, since 2017, we've made six realizations delivering equity proceeds to BPMarch of over £93,000,000 on equity investments of just under £27,000,000 so approximately a 3.5x money multiple. I think all tangible examples of the success of our investment approach. And at presentations in the past, the not uncommon line of questioning was overvaluation and the ability to realize portfolio investments at our valuation.

4:09 I hope this slide goes some, if not all the way, in addressing these two points. Turning to Slide eight and what we intend to do with Potentro proceeds. As recently announced, we intend to return circa GBP 13,000,000 of the proceeds from the sale, which equates to 25%, via dividend and share buyback policy, which will commence upon the receipt of the proceeds. We believe this rewards our shareholders for their patience for the company, whilst also providing significant firepower for new investments and support the existing portfolio. In terms of business strategy, Slide nine, this remains unchanged, and we have an exciting pipeline of new investment opportunities, which is dealt with slightly on Slide 10, which we have the opportunity to execute subject to us being able to obtain satisfactory terms of investments.

4:59 In point of fact, the most pressing opportunities under discussion investigation were all prior to the announcement of the disposal of Kentro. Whilst we expect an increase in new business proposals on the back of this disposal, it's our intention to maintain a measured approach to new business without the feeling of the money burning a hole in our pocket. As mentioned during previous presentations, consolidation at the bigger end of the market continues to drive significant new business opportunities, which I expect to continue into the future. Turning to new businessthe ongoing portfolio, as detailed on Slide 11. We completed a modest investment in Verb Risk Services, a London based specialist underwriting agency, an area where we have good experience of and success in, and we look forward to working with the management team over the next few years to grow the business.

5:51 Activity within the portfolio continues apace, and we've provided follow on funding via way of loans as follows. Slide 12. 4,900,000 to XPT. As you all know, with the proposed disposal of Kentro, XPT will become our single largest investment, which is no mean feat given we invested in 2017 as a start up, and it now produces over $700,000,000 of gross rent premium across 19 offices with over two fifty employees and adjusted EBITDA for twenty twenty three potentially exceeding £20,000,000 The value of our holding in this company has increased year on year by just under 13,000,000 or 59.5% to £34,000,000 Turning to Slide 13. We provided a £500,000 of a £2,000,000 facility to CBC.

6:40 CBC continues to deliver excellent growth as a portfolio company by both organic and new hires. This loan was provided to allow CVC to fund the capital for a new underwriting agency start up, Alchemy Underwriting, which had an exceptional start to life. This benefits CVC directly by both the value of its shareholding it owns approximately 22.5% of the business, and also the fees it receives from the provision of outsourced services and placing commission on Alkermes underwriting facilities. The value of our holding in this company has increased year on year by just under GBP 10,000,000 or 104% to £19,000,000 The full insurance portfolio is set out on Slides fourteen and fifteen, other notable performers being ATC, Slide 16 and Lily Plummer Risk, Slide 17, both delivering significant year on year growth with exceptional prospects looking to the future.

7:35 In looking at the wider insurance portfolio, it's pleasing to note two facts. The majority of the value growth achieved for the 2023 financial year was predominantly delivered by the broking investments, which I would say a turnaround to recent results announcements whereby the underwriting portfolio has been the standout. I think we flagged our expectation as regards to certain eventuality regarding the slightly longer gestation period for brokers versus underwriting agencies, generally speaking. The second fact is that the 2023 financial year, there was negligible value uplift relating to Kentro because we knew we were going to be in the process of selling it, and we knew what our realization value would be. And therefore, the growth year on year within the NAV has been delivered by the portfolio, excluding Kentrek, which showed where we see the potential going forward.

8:28 I think it's worth noting that we wrote off two investments during the year, EC3 brokers and Asia reinsurance brokers. EC3 ultimately being faced with voluntary liquidation, COVID-nineteen certainly playing a major part in this unfortunate situation. A sort of BPMarch differentialsilver lining from this is that working with other portfolio companies, we were able to find employment for both front and back office staff at EC3 with a team of brokers joining Binnie Plumber Risk with an immediate positive effect. Whilst we are sometimes faced with tough financial choices, we try not to ignore or avoid the human impact of these situations and try as best as we can to remediate it where we can. On Asia reinsurance brokers, while we've written this down to zero, it does continue to trade.

9:16 But as ever, we believe the conservative cautious approach is to maintain our write down while the business tries to reposition itself. Turning to the aggregate insurance position, Slide 18. We've tried to show the aggregate size of the premium within the portfolio, and it's often suggested by the wider market, not by us. But BPMARSH walks softly but carries a big stick. And I think this is what they're meaning when they reference that, and hopefully, you set this out in the slide. On the subject of the wider market, we've included Slide 20, which sets out our very high level overview on where pricing sits on a premium basis. Property premium growth shows no signs of abatement. Whilst Broadly speaking, this is a stellar set of results for the company. It hasn't all been an unbridled success.

10:05 We've had to make a significant write down against our noninsurance investment, financial plan at LEBC, and it's detailed on Slide 21. We wrote this investment down by approaching GBP 10,000,000. The investment dates back to 2007, so by some margin, our longest investment predating the majority of the team at BPMarch, and in fact, completed as I joined. To an extent, it suffered the slings and arrows of outrageous misfortune. It's certainly a challenging area of financial services. We've gone through various rounds of management change with some strong performance along the way. Unfortunately, due to a a variety of reasons, the the strong performance has, in some cases, unwound, and we're also faced with a difficult position following the untimely death of the CEO, Jack McVitti. Notwithstanding the above, I feel optimistic as regards this investment in its management team led by Derek Miles, who continues to perform an excellent job in what has been challenging circumstances.

11:00 And it does. As a business as usual, it is profitable, and I think we've worked with LEBC to mitigate some of the challenges they faced. Turning to Slide 22. In drawing my presentation to a close, as I said at the beginning, we're absolutely delighted with the results achieved, thanks to our partnership with our portfolio companies. The end of our successful partnership with Kentro has drawn to a close, but as demonstrated by the numbers, the ongoing portfolio has the ability to produce further significant growth. From a financial reporting standpoint, this is again our most profitable year ever from a PBT and NAV growth standpoint. And post year end, we delivered our biggest ever realization, leading to our largest ever return of capital to shareholders. The cash position is strong. We have a strong pipeline of new business opportunities, so we're in a very optimistic position.

11:49 We believe Kentro will prove to be a transformational realization for the company, which should supercharge us in looking to the future without the requirement, need or desire to change our modus operandi. As a team, we're very much excited by the future. And certainly, Chief Investment Officer, I share the sense of excitement and opportunity. Since becoming a director in 2011, I've observed or participated in significant changes within the group, which have fundamentally positive outcomes on the company and ultimately, the share price and shareholder returns, which in the long run is the scorecard for us as a listed business. Looking to the coming years and decades ahead, I see the same potential, if not greater. Before handing on to John and hopefully repeating myself for that final time, all of this could not be achieved without the team at BPMARSH and our portfolio partners within our partners within the portfolio.

12:39 So I'm particularly grateful the teams. We've got good experience and a good skill set from Bharat Marsh as Chairman to Patrick McNamara as a recent joiner. I think we're all delighted with the results we've achieved and invigorated looking to the next coming years. I can now hand over to John to talk a bit in more detail his thoughts on the financial KPIs within our results, and after which, we can close out the presentation with any questions anyone may have. Thank you, Dan. So I'm pleased to present the key financial highlights for the year to 01/31/2023. So overall, NAV increased by £22,900,000 or 13.8% for the year and now stands at a 189,500,000. That's equivalent to 526.2p per share or 516.8p on a diluted basis, and that's, in relation to shares that the management team have within a JSOC arrangement.

13:34 So this equates to a total shareholder return of 14.4% for the year, including the million of dividend that was paid in July '22. Overall, the group delivered consolidated profit before tax of 27,600,000 for the year, up 8,200,000 or 42% over the prior year. The majority of their profit relates to the increase in valuations of the investments, as Dan has covered, with the equity portfolio rising by 19.1% adjusting for additions and realizations to a 171,500,000.

14:04 Circumed 3% of the return in the year related to foreign exchange gains on the investment portfolio due to the pound weakening. For the segmental reporting section of our accounts, which you may have seen, which is based upon where our investments are domiciled, 37% of our equity investment portfolio by value is overseas versus 63% in The UK. However, on a look through basis, based upon where the revenues actually originate from, it's actually the opposite. Approximately 63% of the portfolio is overseas. One of our core strategies is to seek to ensure that the yield from our portfolio covers our operating expenses so that our investment cash doesn't get depleted by working capital. On an underlying basis, this was achieved with a PBT of 300,000 for the year. Last year, it was 3,200,000, but that included 2,900,000 in realized gains on disposal mainly from the sale of Walsingham. So otherwise, year on year, it's comparable.

15:01 Final dividend of 1.39p per share or 500,000 has been proposed to be paid in July 23, bringing the total distribution for the year to 2.78p per share or a million, including the 500,000 that was paid in February 23. That was in line with the prior year. So on to slide 24. Since flotation, the group has achieved compound growth of 8.711.7% 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 2,900,000 in equity, 2,800,000 in follow on funding into XPT in The US, and 100,000 into a new start up investment of Denison and Partners. We also received 8,200,000 in proceeds from realizations during the year, some of which we announced at the end of the previous year completed in March, delivering net equity proceeds of 8,100,000.

16:00 And we also received additional 100,000 in funds from the sale of MB that actually occurred in '21. Turning to the loan book. This stood at 11,500,000 at the year end compared with 10,400,000 at January 22. We granted 2,700,000 in new loans during the year, 1,500,000 to LEBC for an acquisition, 700,000 to Aggar for working capital, and 500,000 to a new investment, Denison and Partners. 1,700,000 in loans were repaid during the year. Majority of this 1,500,000 was from summer on completion. 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 currently, We often structure our investments as a mixture of debt and equity, although not just debt.

16:46 And this enables a yield to be received on the investment to to cover our operating costs, and the debt repayments help to replenish capital funds rather than having those funds tied up until an eventual exit. There is a slide in the appendices on, I believe, slide 30 that sets out the loan book in full and all the valued at par. The average interest rate charged for the year was 8.6%. That was up from 6.9% in the previous year and reflects the increase in base rates that have occurred over the period. At the year end, we had 12,100,000 in cash, up from 8,600,000 at the previous year end with the increase due to the similar realization less the net loans granted new investments and the million of dividend that was paid.

17:32 So based on the current share price of 370p per share, this means that we're at a current discount to diluted NAV of 28.4%. So following slide, there have been a number of significant developments since the year end. In January, we announced a million share buyback policy, and to date, we've bought back over 103,000 shares for circa 330,000 at an average price of 319p per share. On the current diluted value of 516.8p per share, we would value those at 533,000, so sort of 62% up on that. In May, we announced the agreed sale of Kentroy subject to regulatory approval. We should provide 51,500,000 in cash net of transaction costs.

18:18 We've also provided since the year end 4,600,000 in net new loans, of which 4,900,000 was lent to XPT to enable further acquisitions, of which 800,000 has subsequently been repaid, has damaged 500,000 to CBC as part of a new 2,000,000 facility to fund a new start up London property MGA. We also announced we've invested 1,000,000 in a new investment, Verve, in a mixture of equity and debt. Current cash is 5,200,000, which is expected to increase to over 56,000,000 on completion of Kentro. As Dan has set out, the proposal is then to distribute 25 on proceeds, 7,000,000 via dividends over three years, and a new 6,000,000 share buyback policy.

19:04 So turning to slide 26. To summarize the position, why invest in BPMush? We're a leading specialist investor with an excellent track record and 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 mitigated risk. We've achieved 8.7% compound growth since flotation, 11.7% since inception after all expenses realizations distributions, and that's through identifying excellent growth opportunities and delivering added value and return to shareholders as demonstrated by growing the NAV to a 189,500,000. When Kentroy completes, we expect to have over 56,000,000 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 cash sales of Walsingham, Sommer, and now Kentro. This has provided the opportunity to return 25% of the expected Kentro proceeds, rewarding shareholder loyalty whilst providing significant cash to fund both new and existing opportunities. We consider the current discount to diluted NAV of 28.4% to be unwarranted. So this concludes our formal presentation. I will hand back over to IMC to invite any questions that you may have. That's great. Dan, John, thank you very much indeed for your presentation this morning. And if I may, I will just bring back up your camera there in the room.

20:38 Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top 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. Thank I you to all of those on the call for taking the time to submit their questions.

21:08 Simon, if I may hand over to you to chair the Q and A session with the team and then I'll pick up from you at the end. Thank you. Thanks, Jake. Let's start with a pre submitted question. There's always been a substantial discount to NAV. Is the buyback program going to make an appreciable difference? And what other measures have been considered to reduce the discount to NAV?

21:37 Well, there has been a significant discount to NAV, the share price. I think, certainly, the buyback is an attempt to go some way to address that. Time will tell it. If it does make an appreciable difference, we certainly think it hopefully should. In terms of what we've considered, we've forgotten a sort of parallel smaller share buyback where we've used that try and manage the discount as best we can. But everything is under consideration to manage the discount from dividends, which we've increased. And clearly, with realizations, we seek to to continue a meaningful distribution of sale proceeds. I think, you know, with the the Kentro realization, we're gonna return 25% to shareholders whilst we're not gonna impose any rules on disposals. I think that's a fairly decent starting point to have a a 25% return to shareholders, but, you know, as the best way possible for the shareholders, and that should hopefully have an impact on the discount to share price and NAV or NAV to share price. I think there'll there's there'll always be a natural discount, but it's our job to try and make that natural discount as as small as possible.

22:52 I think I'd add to that. You know, delivering on results, you know, we've seen a sort of almost 20% increase in the share price over the last month since we announced the Kentro disposal and and delivering that, and it's, yeah, continuing to prove, you know, what we always set out.

23:13 Thanks, guys. Pursuing that that idea a little bit further, question from Alex. Can we expect to see further realizations following the same path as the Kentroy sale? And Dan, I think you've already partially answered that one in returning cash to shareholders. And do you see

23:34 this strategy as a catalyst to attract new investors? Yes. I think whilst not setting a hard and fast rule, certainly, that's what we think makes sense in terms of distribution to shareholders, what we've done with Kentro. And certainly, I would hope it is a catalyst to attract investors, giving them the opportunity to invest in a very strong portfolio that delivers outsized results.

24:03 Okay. A couple of questions on new opportunities and new investments. In terms of balancing new investments and cash returns, do you have a defined metric

24:16 of how you divide those two? Could you identify a little bit further and expand on the pipeline of new investments that you've got? And how specifically do you identify new opportunities? On the metric, no, we're more flexible than that. But I think regardless of the cash position, we're not going to change our investment approach in terms of the target deals that we're looking at. We do have a good inflow of deals in our, you know, bailiwick in that sort of zero to five million investment gap that we detail in the appendix on the presentation, and that's certainly not slowing down. I think what we do like to do is is follow our money. You know, we've got, generally speaking, a very successful track record of that.

25:06 So whilst not changing our new business approach within the portfolio, we've got significant areas where we can deploy that capital and look using Kentro as an example for an exit investment. We started with 1,500,000 committed, and we've gone to 15,000,000, which was our biggest. And then looking within the portfolio, XBT isn't far behind and has achieved a great deal. So we will continue to deploy investments into to XBT, I would imagine, should should the right proposals come through, which I I suspect they will. And

25:42 then the other part of the question, how do you the new opportunities. I think we we don't participate in auctions like mid market private equity do. Reputationally, feel we've developed a very good reputation within our area of operation, and we continue to see people coming to us as the capital provider of choice in insurance distribution businesses. And certainly, that's evidenced by our results from a a quantitative standpoint. We we are, I would say, unique in funding flexibility and provision of funding such that, people come to us on reputation, and we are the only game in town.

26:27 Thanks, Dan. Thanks, John. Are no more questions, and I'll hand back to to Jake. Thanks, Simon, and Dan and John as well. Thank you very much indeed for being so generous of your time and addressing 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 and 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 investor meet company platform. But, Dan, perhaps before redirecting those on the call to provide you with 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. No. Thank you very much. And firstly, thanks for everyone who's who's attended this call. We really welcome people learning more about the business. We like to tell the story. We think it's an exceptional story of what we've achieved and the opportunity of what we can achieve going forward. I think this set of results demonstrates that, and we certainly feel very confident and comfortable of what we can and will achieve going forward next six months, next twelve months, next few years to expand on the performance of the portfolio. So thanks for people attending and just to thank everybody at BPMash for all they've done and what we've achieved and continue to achieve. And if there are any if people do have any questions after the fact, please, by all means, an investor meeting because we will address every question raised either during the meeting or if it's raised after the meeting. So please,

27:58 please, if anything pops into your head, do do get in contact. Dan, that's great. And John as well, 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? It's 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 morning to you all.