Aim-traded insurance sector investment company BP Marsh & Partners (BPM:215p) has increased its year-end net asset value (NAV) by 8.5 per cent to a record £137m (380p per share) and maintained annual pre-tax profit of £12.2m. Valuation gains were broad based as only two of the 17 investees companies recorded downward movements.
BP Marsh’s 18.1 per cent stake in Nexus Underwriting, an independent speciality managing general agency (MGA) that has been scaling up through organic growth and acquisition, increased by a third in value to £40m. That’s almost four times the £11.1m net investment made since BP Marsh purchased an initial 5 per cent stake for £1.5m in 2014, during which time Nexus has grown both gross written premium (GWP) income and cash profit by 550 per cent to £325m and £15m, respectively. The holding accounts for 30 per cent of BP Marsh’s NAV and the likely end game is a buy-out from a Bermudan rival attracted by Nexus’ geographic and portfolio spread – the group has offices across nine countries, underwriting over 500,000 policies across 15 classes of business.
I can also see further investment upside in CBC, a retail and wholesale Lloyd's insurance broker that has just recruited a smart international team to expand overseas. BP Marsh first invested in 2017 and has a free carry on a 38 per cent equity stake that was marked up from £4.9m to £7.1m after CBC deliver a cash profit of £2.5m. BP Marsh’s well connected team also got in on the ground floor, too, when they backed start-up MGA, Stewart Speciality Risk Underwriting, in 2017. It is now a trusted and profitable insurance partner to the Canadian Property and Casualty sector, and one in which BP Marsh has a free carry on its 30 per cent stake worth £2.5m.
BP Marsh’s 32 per cent stake in XPT, a New York-based wholesale broking and underwriting agency across the US specialist insurance sector, has scope for material gains, too, even after BP Marsh raised its valuation by 42 per cent to £11m. XPT successfully secured $40m (£31.2m) of funding from Madison Capital Funding LLC last year to value the enterprise at $54m (£42.1m) and provide firepower for strategic acquisitions in North America. BP Marsh first invested in the start-up in June 2017 and XPT’s annualised GWP income is forecast to hit $300m this year following the acquisition of Houston-headquartered LP Risk, a MGA and surplus lines broker that handles over 4,000 accounts on behalf of 350 retail agents and brokers in 18 US states.
Admittedly, the financial reporting period ended before the outbreak of the Covid-19 pandemic. However, chairman and founder Brian Marsh is still optimistic for the year ahead, and justifiably so when you consider the diversified mix of businesses his company has invested in. Around 57 per cent of income is generated overseas and a third in North America, a key focus.
Shares in BP Marsh are unchanged since I last advised buying (‘Takeovers, tenders and taking profits’, 9 Sep 2019), and have produced a 175 per cent total return since I initiated coverage ('Hyper value small-cap buy', 22 Jan 2012). Since 1990, the cash-rich investment company has delivered NAV annual compound growth of 11.8 per cent, a record that makes a 44 per cent share price discount to NAV anomalous. A small dividend is another attraction. My target price of 330p factors in a 13 per cent small-cap liquidity discount. Strong buy.
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