MIDAS SHARE TIPS: Drive up profits with cover for US truckers

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

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

Brian Marsh is one of the best connected protagonists in the game. In his twenties when he started out as an enthusiastic young broker, Marsh is now 82 and still active as chairman B. P. Marshan AIM listed company that invests in emerging insurers in the UK and abroad.

Marsh sold his first insurance business in 1989. He experimented with early retirement, but soon returned to the industry, lending to start-ups and sowing the seeds for BP Marsh.

Today, the company is valued in the stock market at £140 million, with the shares trading at £3.76 each. At this level they have real potential. Marsh remains a 40 percent shareholder and the company is respected throughout the insurance industry.

BP Marsh takes minority stakes in start-up insurance companies, supports them as they grow and sells them out when these young companies are taken over by larger companies.

In the last six years alone, Marsh has sold six companies – investing £27m upfront and earning more than £93m when they were sold. The biggest deal, Kentro, was signed two weeks ago.

Marsh invested £15 million in the company. 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, £1m will be paid out in special dividends. That equates to a share price of 2.78p, on top of a 2.78p ordinary dividend announced last week. The group will also spend £6 million buying back its own shares.

Buybacks offer additional benefits to investors because they should yield higher dividends. And Marsh plans to pay out a further £6 million from the Kentro sale over three years, equivalent to an annual dividend of at least 5.56 pence.

The group has interests in 14 other companies, from a US-based truck and cargo insurer to a Lloyd’s of London marine broker to an Australian company, dealing with kit kits, luxury cars and even sports injuries.

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

Given BP Marsh’s extensive network, the company rarely has to hunt for deals. Instead, business owners approach Marsh and his team directly. This means that transactions are often exclusive and that the prices are competitive. More investments are in the pipeline. The Kentro deal will leave BP Marsh with a lot of cash and several deals are already in the pipeline. Two or three investments are ripe for sale in the next 12 months or so.

The company hopes to expand its portfolio to at least 20 companies. If chosen wisely, that should translate to higher profits, bigger dividends and a rising share price.

Last week the group announced a 42 per cent increase in pre-tax profit to £27.6m for the year to January 2023. The value of the company’s portfolio increased by almost 14 per cent to £189.5m, equivalent to £5.17 per share.

That means the shares are trading at a 27 percent discount to the value of BP Marsh’s assets. This seems undeserved. The company has a track record of making money and there is every reason to believe it should continue to do so. Marsh and his team are extremely picky about which companies they support, they have decades of experience and the market is vibrant.

Also important is that BP Marsh invests in brokers and insurance agents – companies that receive commissions or commissions, but don’t have to take any risks themselves.

Midas verdict: BP Marsh is a successful company run by an astute team and chaired by an industry veteran. The company is also committed to delivering shareholder value and has consistently demonstrated that it can do just that. At £3.76, the share is a bargain.

Traded on: GOAL ticker: BPM Contact: bpmarsh.co.uk or 020 7233 3112