BP Marsh is currently trading in the range 212-215p though this will probably have changed by the time you read this. That said historically BPM is not a highly volatile stock.
BPM describes itself as a specialist private equity investor in early stage financial services businesses. BPM will both take equity and provide loan financing to its investments.
61.9% of the shares in the company are controlled by the firm’s founder, Brian Marsh. Mr Marsh is 76 years old and is the Executive Chairman of the Company. It would seem that Mr Marsh is still very much involved in the Company.
The current MD Alice Foulk (aged 30) gained her position after being Executive Assistant to the Chairman so it is perhaps fair to see the Board as unlikely to disagree with its major shareholder and real executive authority resides with Mr Marsh.
In my opinion the 2 other key Directors are Jonathan Newman the Finance Director who has been with the Company since 2001 and Daniel Topping the Investment Director who has been with the Company since 2011.
The Company’s website makes it very clear that both Mr Newman and Mr Topping are significantly involved in working with the investment companies to help them deliver value to BPM. Mr Topping covers most of the BPM appointee responsibilities and Mr Newman works closely with the finance departments. Mr Newman has also been the BPM appointee on some of the bigger investments. Both Mr Topping and Mr Newman own approximately 1.2% of the business.
6.3% of the business is owned by IS partners, an investment fund based in Zurich and 4.9% is attributed to James Sharp stockbrokers.
As of the date of the financial report (6th June 2017) for the Year to 31/01/17 the Company had the following investments
UK
The Fiducia MGA Company - Insurance
Nexus Underwriting Management – Insurance
LEBC Holdings – IFA & Pension Advisory
Walshingham Motor Insurance – Insurance
CBC (UK) Ltd - Insurance
Singapore
Asia Reinsurance Brokers - Insurance
Spain
Summa Insurance Brokerage – Insurance
Australia
Sterling Insurance – Insurance
MB Prestige Holdings - Insurance
Canada
Stewart Speciality Risk Underwriting – Insurance
South Africa
Bastion Reinsurance – Insurance
Bulwark Investment Holdings – Insurance
Property & Liability Underwriting managers – Insurance
Per the Company’s accounts in the year ending Jan 2017 they looked at 84 new opportunities.
This seems to have led to 4 new investments; Asia Reinsurance, Fiducia, Stewart Specialty and CBC. At the same time the Company has made 5 disposals. 3 of which seem to have been significantly driven by other parties (the acquirers, who wanted to buy,) with 2 being non-core disposals. The value of these disposals does give some assurance to the Valuation figures that are being used by management in their net asset values. (As in the disposal value was equivalent or better than the carried value). In YE 2016 NAV increased by 12.4% and in YE 2017 by 12.5%. These figures are net of dividends. (I quote both years as disposals have often been in the works over a year end and as such reflected in the valuation of the prior to completion year).
The Company also made further investments into 3 of its investments.
Historically I am a fan of companies with big management shareholdings, though my recent experience with Fusionex where the significant Manager/Shareholder has gained control of the company after devaluing it has made me consider this both as a benefit and as a risk.
It should also be noted that BPM is not a liquid share. I have invested a number of times because it has taken a number of very small investments to get my current small investment. I have made 5 Purchases whereas I would normally have only made 2 if my initial order size had been fulfilled. Illiquid shares are difficult to get into and can be difficult to get out of.
The investment thesis to my mind is that both Marsh, Newman and Topping have proved themselves to be capable of spotting a good investment and working with it to deliver real value over time. Since 1990 the company claims a NAV increase of 11.4% compound.
Currently the business has a market cap of £62.2m with a NAV (2017 acs) of £79.7m a 28% discount. Of this £79.7m at the 6th of June £29.2m is cash.
Yield is circa 1.8% but could given the large amount of cash be increased.
Last year BPM made £9.8m after tax and £8.7m the year before. There is no obviously questionable accounting and no attempt to suggest that EBITDA or “adjusted” or “underlying” earnings be used as a measure of the company’s success.
The company has recently changed its investment parameters from a maximum of £3m to £5m per investment. I do not know whether this reflects – a shortage of good investment opportunities, - a lack of good staff to manage investments, - a desire to not have too many investments – a general inflationary increase in the market where people don’t look to do smaller deals.
In the short term I see the downside risk as limited with the potential for Mr Marsh to look for a crystallisation event. Mid term I think the key Directors have proven themselves and are developing a team below them. I note that Oliver Bogue was made an Investment Director in 2016 and has been appointed as the Company’s representative on the board of Summa. Presumably to gain further experience to help Mr Topping who is normally the Company’s stated nominee. Though perhaps its just that Mr Topping doesn't like travelling to Spain.
The company is profitable, though small and whilst controlled by one person is not reliant on them nor in my opinion deserving of such a discount to NAV. It should command a rating based on its ability to deliver profit over the years as well as the substantial NAV valuation. The discount provides a real MoS in a company that is growing strongly but carefully.