MIDAS SHARE TIPS: BP Marsh invests in up-and-coming insurers

Cash haul: BP Marsh holdings include a US-based truck and cargo insurer

For most of us, insurance is a numbers game – how little can we pay to secure the cover we need? Renewals are done online and interaction with insurers is kept to a minimum.

Commercial and specialised insurance is different. Needs can be complicated, transactions take time, brokers are a must and relationships an integral part of the process.

Brian Marsh is one of the best-connected protagonists in the game. In his 20s when he started out as a keen young broker, Marsh is now 82 and still in business, chairing BP Marsh, an AIM-listed company, which invests in up-and-coming insurers in the UK and overseas.

Marsh sold his first insurance enterprise back in 1989. He experimented with early retirement but soon moved back into the industry, lending to start-up firms and sowing the seeds for BP Marsh.

Today, the company is valued on the stock market at £140 million, with the shares trading at £3.76 apiece. At this level, they have real potential. Marsh remains a 40 per cent shareholder and the firm is respected across the insurance sector.

BP Marsh takes minority stakes in early-stage insurance firms, supporting them as they grow and selling out when these young businesses are acquired by larger companies.

In the past six years alone, Marsh has disposed of six businesses – investing £27 million upfront and making more than £93 million when they were sold. The largest deal, Kentro, was signed two weeks ago.

Marsh invested £15 million in the business. Now it is about to be acquired by New York-listed Brown & Brown for £51 million.

Marsh believes in rewarding shareholders so, when Brown & Brown hands over the cash, £1 million will be paid out in special dividends. That equates to 2.78p a share, on top of a 2.78p ordinary dividend announced last week. The group will also spend £6 million buying its own shares.

Buy-backs provide extra benefits to investors because they should deliver higher dividends. And Marsh intends to distribute a further £6 million from the Kentro sale over three years, equivalent to an annual dividend of at least 5.56p.

The group has holdings in 14 other firms, from a US-based truck and cargo insurer to a Lloyd’s of London marine broker to an Australian firm, covering building kit, luxury cars and even sports injuries.

Initial investments are up to £5 million, stakes are between 20 and 40 per cent and the group holds on to businesses for an average of seven and a half years.

Given BP Marsh’s extensive network, the firm rarely has to seek out deals. Instead, business owners approach Marsh and his team directly. That means transactions are often exclusive and pricing is keen. More investments are on the horizon.

The Kentro deal will leave BP Marsh with plenty of cash and several transactions are already in the pipeline. Two or three investments are ripe for sale too over the next 12 months or so.

The firm hopes to increase its portfolio to at least 20 firms. Chosen wisely, that should translate into higher profits, larger dividends and a rising share price.

Last week, the group revealed a 42 per cent increase in pre-tax profits to £27.6 million for the year to January 2023. The value of the firm’s portfolio increased almost 14 per cent to £189.5 million, equivalent to £5.17 a share.

That means the shares are trading at a 27 per cent discount to the value of BP Marsh assets. This seems undeserved. The firm has a track record of making money and there is every reason to believe it should continue doing so. Marsh and his team are extremely choosy about which businesses they support, they have decades of experience and the market is buoyant.

Importantly too, BP Marsh invests in brokers and underwriting agents – firms that are paid fees or commission but do not have to take risks themselves.

Midas verdict: BP Marsh is a successful business run by an astute team and chaired by an industry veteran. The firm is also committed to delivering value for shareholders and has consistently shown that it can do just that. At £3.76, the stock is a buy.

Traded on: AIM Ticker: BPM Contact: bpmarsh.co.uk or 020 7233 3112