BPM has historically been an investor in in early stage financial services businesses. Initially the model was to take minority equity stakes. This expanded into loan funding to accompany the minority stakes and has further expanded into holding majority stakes in some of their investments. Over the period BPM’s self description has moved from investor to venture capital.
The 3 key people are;
Chairman/Founder and Majority shareholder; Brian Marsh
Finance Director; Jonathan Newman
Chief Investment Officer; Dan Topping
Mr Topping is the usual board appointment that BPM makes in its investee companies. Though in the last few years a number of more junior staff have begun to take on Investee Board roles. I believe this is partly a training approach and partly reflects the increasing number of investments BPM has made.
Mr Newman also has a lot to do with investee companies in terms of their financial and reporting side. He did also take some of the direct appointments but I am guessing that as the group has grown the finance role has required more of his time.
Whilst there are a number of moving parts I do think that the business is reasonably clear in the way it operates and has strong history of management both saying and doing.
NAV per share has moved to 339p (net of declared dividends) from 304p in July 2017 and 273p in January 2017. A 24% growth over a year with a slight second half improvement over the first half. BPM also pays out a small 1.3% yield dividend.
The entire company has a NAV of £98.9m but a market cap of only £82.1m at the time of writing. An 18% buffer.
The Company claims an average annual NAV compound rate of 12% since 1990. Whilst true I think this understates the business as they have been improving their rates as they become more known and become a go to source for investment. It may also be the case that some of their more recent investments are more focussed on acquisition growth than previous. As such the growth rate should be higher.
The business is very well aligned with shareholdersd as Mr Marsh is essentially remunerated through his shareholding. Both Mr Newman and Mr Topping have equity and options. (See also PSC Group involvement below)
Mr Marsh is 77 years old, so one question is what would happen to the business going forward. A second question has been what would BPM do as its funds were invested. In October it had £22m of cash, though £8.8m of this was to investments. At year end January 2018 it only had ££5.4m with £4.9 committed.
In June 2018 along with announcing its results BPM also announced that it was issuing new shares equalling about 16% of the business. 15.6% of this will be to new investee the PSC group and about 0.4% to existing shareholders. The issuance is at about an 11% discount to the share price before the announcement. PSC will also be buying 4% of the company from Mr Marsh.
PSC (listed in Australia) is more than 4 times the size (by market cap) of BPM and is more focussed on insurance than BPM. It also seems more focussed on acquiring controlling stakes and running its investee businesses.
However the acquisition provides useful funds for BPM to continue to expand as well as a significant minority partner with the financial resources to ensure BPM and Mr Marsh are no more intertwined than they wish to be.
It also provides a shareholder keen to ensure the management act in the best interest of shareholders.
Readers may of course wonder why BPM needs additional funding to grow as it has sold two businesses in 2017. But these funds were quickly recycled.
Current PE is 8.4% but this is a NAV play. Price to NTAV is 1.
The internal valuation is the big issue. Not because they get it wrong but because as a NAV play valuation of the parts matters. Historically when they have sold, BPM has obtained at least their current valuation for the business they have. But in the last year the 3 South African investments have been written down to zero. (At the same time as returning 24.1%). But clearly they cannot help a business beat the market. Also the Spanish business Summa is struggling but continues to be valued at £4m. It is in part a question of trust, though information is given on the parts, so you can do some verification and I think management have earned that trust.
I would be concerned if either Mr Newman or Mr Topping were to leave suddenly. I would be significantly less concerned if other directors or senior managers left.
So in terms of declared results this business is a diamond. However the South African results suggests it is not perfect.
I continue to hold and add.
As always DYOR.