For the last 18 months there have been two investments, LEBC and Nexus, about which there has been a suggestion that BPM could be looking for an exit, possibly via a flotation.
In both these cases BPM has since the initial story made it clear that at the current time it was not deemed appropriate to float/sell these businesses and to do so would not result in full value.
In the case of LEBC the situation, via yesterday's RNS's , has been made clear to be significantly worse than a bit of timing.
Yesterday LEBC announced it had come to an agreement with the FCA whereby it would cease with immediate effect to advise on the transfer of Defined Benefit Schemes. This has proven to be a lucrative piece of work for many IFA's and given 69% of those that seek advice end up transferring one the FCA seems to feel is not being well managed. It would seem that the FCA feels a substantially lower transfer rate would be more appropriate and the high rates reflect generally poor advice.
Per the January 2019 results BPM had a NAV of £126.2m and within that LEBC had a valuation of £35,485,000
Pre the announcement BPM had a market cap of £105m. Following the announcment BPM has a market cap of £80m. Essentially the valuation of LEBC has been cut to £10m a reduction of circa 60%.
However BPM has pointed out that the revenues of LEBC that pertained to DBS was only 19% of the total. Even if this was particularly profitable does it really deserve a 60% drop on what was already a 17% below asset value market cap.
If LEBC is now only worth 75% of what it was then there is only about £10m to take off the value. So the net asset value is about £116m and the market cap £80m. A 45% Margin of Safety.
Having said that I have a number of times before felt that the MoS on BPM has got quite wide and the market has felt no need to bridge the gap any time soon. But an interesting opportunity and I have added to my holdings. Though this is limited due to limited cash in the relevant account.
Following my initial writing BPM has issued a further RNS. In this it says "Although the current situation will reduce LEBC's valuation in the short term, B.P. Marsh has a diverse portfolio and the strong performance delivered by a number of its investee companies in recent months means that the Board believes that the Company will emerge in a satisfactory position under the circumstances as regards its financial results for the six months ended 31 July 2019."
I am taking this to mean that whilst LEBC will be reduced in valuation the overall group should be near the £126m NAV of prior results. And as such the MoS is even greater than the 45% I have suggested above.