Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

B.P. Marsh & Partners - Enrichment of Directors and staff but not outside shareholders, an AIM rip off!

I recently had a look at BP Marsh & Partners, the AIM quoted financial services investment company.

I have reach the conclusion that there seems little point in this financial services investment group for outside investors as it appears to be managed solely for the benefit of its overpaid staff.

A browse through the interim results for the 6 months ended 31st July 2006, which were announced on 25th October, reveals an investment business that had staff costs of £754k and other operating costs of £426k in the 6 months. I’m not sure if there are any float costs in these numbers but even if one strips them out the costs on an annualised basis look outrageously high. Importantly there was also no mention of dividend intentions or the like.

Putting things into perspective, B.P. Marsh had net assets of £44.9m at the interim stage, including cash of £7.4m left from its AIM fund raising.

The business model appears to be one of providing financing of last resort (I presume it is last resort given the terms of the financial arrangements) to financial services businesses and predominantly those in the insurance sector. Investments are seemingly held for the long term with several key investments having been made back in 1994 and 1995.

Given the rich terms of the financing arrangements, which simply go towards supporting B.P. Marsh’s exorbitant operating costs rather than any return to shareholders, exits are clearly not that desirable to the board-that is, unless they can find another suitably desperate business in which to invest!

Comparison can be made to the investment trust sector.
A look at F&C Global Smaller Companies unaudited Preliminary Statement of Results for the year ended 30 April 2006 reveals a business that had investments of £238m and net asset value of £227m. The trust’s share price had risen 62% in the year and the NAV had risen by 51%, an outstanding performance. The trust had also increased its dividend in the period by 25.7% and also instigated ongoing share buybacks-just what one would expect. The management fee charged during the period for managing this large book of small cap investments was £1.2m. Other costs (which I assume were actually payable to the trust’s administrator and not the manager) were £1.1m. All in all, the gross expense ratio based on year end net assets appears to be c1.40% (the reported expense ratio based on average net assets is 0.69%) and the actual management fee only represents 0.53% of year end NAV. This compares with B.P. Marsh’s gross expense ratio of what looks like something in the region of 5% (Wow!), with minimal dividend distribution and no share buy backs.

Annual management costs of c£2m for an investment portfolio of c£35m are quite staggering and the high fees being generated from investments are simply being mopped up by the operating costs with little available for distribution to shareholders.

In the absence of realising profits on their investments and returning money to shareholders in the form of dividends what else is there for outside shareholders to look forward to in the short term.
With Mr Marsh holding 58% of the equity and other Directors controlling other key stakes there is little hope for outside shareholders. I actually question how this business managed to attract any outside shareholders in the first place as it simply appears to be supporting its board of directors.


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