Interactive Investor

BP Marsh discount is too large

2nd June 2015 14:01

Lee Wild from interactive investor

Brian Marsh is in confident mood. And so he should be. BP Marsh, the private equity firm he set up a quarter century ago, has achieved annual compound growth of 11.3%, and grown net asset value to 216p per share. The shares, however, currently trade at 35% discount to book value, which looks unfair.

In the year to 31 January 2015, the equity value of the portfolio increased by 15.5%, profit jumped by 45% to £5.9 million - £5.1 million from unrealised gains on revaluing the investment portfolio, up 30.8% - and the total return to shareholders improved to 8.2%.

BP Marsh also achieved its strategy of covering expenses from the portfolio yield. It did this on an underlying basis (excluding portfolio movement) with a pre-tax profit of £0.8 million for the year.

Two new investments during the 12 months - insurance brokers in the UK and South Africa - chewed up £1.7 million in equity financing and £0.3 million in loan funding. Marsh typically invests up to £3 million in 15-45% of an investee company, which it tends to hold for about seven years. And £6.8 million of the £7.9 million of cash and treasury funds at year-end is available for new investment opportunities.

(click to enlarge)

"In our view BP Marsh is doing exactly what it set out to do and is doing it well. Investor patience is being rewarded not just in NAV growth that should be reflected in the share price, but also via share buy-backs," says house broker Panmure Gordon's Barrie Cornes.

"We think that the shares should not trade at a discount any greater than 20% of the NAV. The current discount to NAV at 31 Jan 2015 is an unjustified 35%. Given that the NAV at 31 January 2015 was 216p per share we have increased our target price to 173p per share from 162p per share previously. Buy."

Marsh, who still owns 63% of the business, has kept the dividend at 2.75p per share.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.