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magazineWhy bad weather is good news for BP Marsh
Insurance companies have been in the headlines recently due to a number of destructive forces of nature wrecking havoc across the US, the Caribbean and Mexico.
BP Marsh (BPM:AIM) invests in the insurance sector so you might think it’s one to avoid due to heavy payouts by the insurance sector. You’d be wrong, according to one analyst.
The company invests in insurance brokers as well as other financial intermediaries so has no exposure to underwriters who bear the burden of having to pay out on claims.
Conversely, destructive hurricanes and earthquakes can lead to an increase in premiums (in insurance speak, the market ‘hardens’).
Panmure Gordon analyst Barrie Cornes believes such recent events could be a boon for BP Marsh. This is because brokers receive commission on the premiums they negotiate.
Cornes says: ‘We fully anticipate rates in the affected classes to start to increase whilst it is possible that the rate of decline in other classes will slow or even stop. This would, in our view, be good news for BP Marsh.’
The company’s results for the six months to 31 August 2017 show it has a knack for picking the right investments. Its net asset value increased by more than £10m to £88m in the space of a year. Its post-tax profit also more than doubled to £10.2m.
The company says it is hoping to pay 3.76p dividend per share for the current financial year and it aims to maintain this level for the next two years ‘when circumstances allow’.
BP Marsh has a global footprint and recently made a decisive push into the US. It took a 25% stake in New York-based specialty lines insurance distribution company XPT in June.
Earlier this month BP Marsh acquired 30% of Mark Edward Partners, a multi-office US insurance broker.
The company had £8.6m cash available for further investments as of 31 July 2017.
Its exit strategies drove the recent impressive financial results including the sale of its 37.9% stake in Besso for £22m in cash plus loans.
Cornes says this highlights what an ‘exceptional investment it had been given that the final proceeds represented an internal rate of return of 21.9% since 1995’.
The analyst gives the company a ‘buy’ recommendation with a target price of 289p. It presently trades at 268p. (DS)
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