Interactive Investor

Insider: a top stock and an income play

6th September 2021 09:18

Graeme Evans from interactive investor

One of this high-flying AIM firm’s head honchos has had a dabble, and there’s more buying at a popular mid-cap dividend stock.

The chief investment officer at B.P. Marsh & Partners (LSE:BPM) has made a purchase of his own after picking up shares worth £7,000 in the AIM-quoted financial services investment firm.

Daniel Topping has been in the role since January 2016 and oversees an investment strategy focused on a longer-term approach the company describes as being “farmers not hunters”.

It has invested in over 50 businesses in the financial services sector since it was founded in 1990, with an average portfolio holding of seven years but some dating back 20 years.

The company has been a popular holding for retail investors, giving them an opportunity to back small to medium intermediary businesses they would otherwise find hard to reach.

Shares have doubled since their pandemic low of 158p in April 2020, with Topping making his purchase on Wednesday at a price of 324p. The stock closed the week at 319.75p.

This still represents a discount of 23% to the net asset value of £149.9 million or 416p a share disclosed in June's annual results, when the dividend also increased 10% to 100% of underlying profits at 2.44p a share.

Following the results, broker Panmure Gordon said the share price reflected a “too pessimistic outlook” for future investee company valuations and was at odds with the company's strong track record.

Analyst Barrie Cornes added: “Total shareholder returns of 10.1% for the year, including the dividend and net asset value increase, is impressive and in our view highlights the benefit of a diversified investment portfolio.”

The current portfolio extends to 18 businesses worldwide, with one of the most recent additions being the 30% stake in Oregon-based Sage Program Underwriters for £203,000. It provides workers compensation insurance to niche industries, including field sport sectors.

Investments closer to home include the largest in the portfolio, Nexus Underwriting Management. The stake of 17.9% was valued at £40.9 million at the end of January, an increase of £30 million on the amount invested by BP Marsh since its first involvement in 2014.

Nexus recorded gross written premiums of £308 million in 2020 but this is projected to rise to £400 million in 2021 amid strong prospects and after December's acquisition of Hiscox MGA Marine. Annual premiums had been £40 million when BP Marsh first invested in the company.

Topping and his team reviewed 50 new investment opportunities in the last year, compared with 117 the previous year, but now has “plenty to consider” amid a surge in potential investments as confidence in the industry recovers following the pandemic.

It said in June: “We remain optimistic that we will be able to secure scalable and high growth investments, which will deliver substantial shareholder returns over time.”

The company typically invests amounts of up to £5 million in the first round, initially only minority equity positions and prefers to work alongside management on a mutually beneficial exit route that maximises value. 

BP Marsh's own management team has a well-developed network within the financial services sector. Executive chairman Brian Marsh, who owns 38% of the company, started his career in insurance broking and underwriting in Lloyd’s over 55 years ago and from 1979 to 1990 he was chairman of Nelson Hurst & Marsh before founding BP Marsh.

Topping has been a director since March 2011, having joined the group in 2007.

Buying at dividend stock Direct Line 

Elsewhere in the sector, Direct Line Insurance Group (LSE:DLG) disclosed on Thursday that its chairwoman Danuta Gray bought £51,000 worth of the company's shares at a price of 311.5p.

She has led the board since August 2020, following the departure of Mike Biggs as chairman. Gray became a non-executive director in February 2017, having held senior positions within BT Group from 1984 to 2001 and serving as chief executive of Telefonica in Ireland until 2010.

Her purchase was made a month after chief executive Penny James revealed that the Churchill and Green Flag business returned to growth in the second quarter, driven by strong performances in its commercial, home and rescue divisions.

The interim dividend of 7.6p a share was up by 2.7% over 2020 and Direct Line also launched the second £50 million tranche of its previously announced buyback programme. James said at the time of the results: “We are at an incredibly exciting point in our transformation and we look ahead with confidence.”

Shares rallied 5% to 315.9p on the day of the results but have failed to kick on since, closing last week at 313.3p.

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