1st place BGL
?BGL has produce an excellent result of increasing income by 38% and posting a dramatic rise in profitability to achieve a margin of 25%, excellent for a personal lines business which has built its brand from nothing.
The management has shown a refreshing willingness to sell parts of their book as well as make acquisitions. You can tell the quality of a company’s acquisition strategy by what is sold. When Jack Welch took over GE he sold around 40% of the turnover, being low margin businesses with weak competitive positions, before embarking on what became an acquisition trial of epic proportions. BGL has a clear view of the market and what it should be focusing on.
2nd place RK Harrison
With a weak rating environment and the dollar plumbing ever lower levels most Lloyd’s brokers have struggled to maintain their top line and a number have experienced significant drops in reported earnings. The pain of 2006 is likely to be greater in 2007 as hedging programmes fall away and there is no escape from the $2 exchange rate.
Amid the gloom RK Harrison’s increase in revenue of 28% and profits by 69% is a tremendous result. While it has not been making acquisitions in the conventional sense of buying companies, its ability to attract teams remains a key driver to its growth.
3rd Place Towergate
?Last year when awarding Towergate equal second place we stated “Consequently we expect the growth rate to tail off but one cannot accuse Peter Cullum of lack of ambition”. With an increase in revenue of 41% Towergate has actually grown faster not slower in 2006. Consequently Peter has forced himself on to the winners’ podium yet again.
This is not to say that there are no issues facing the business. Given Towergate achieves some of the highest commission rates in the industry, commission disclosure, should it come, will need to be managed carefully. Acquisitions have become increasingly expensive and we have seen the other consolidators learn the techniques so successfully deployed by Towergate over the years.
We remain sceptical of Towergate’s stated aim of acting as a consolidator in the IFA space as this market has very different dynamics and effective consolidators already exist.
Having been proved wrong last year about Towergate’s growth Peter may yet continue his inexorable march onwards. The bigger the beast, the larger the prey it can hunt.
Best of the rest
?The following, listed in descending size order, have all produced results that any management team would feel proud of. Broking is a mature market and every pound of profit has to be fought for.
?Although revenues are only up 8%, profits have been transformed, increasing 350% to achieve a margin of around 30%. Not ‘arf bad in a highly competitive market.
?It is a bold move by AXA to have created a vehicle within a year that contains three consolidators. The three had discussed the idea of merging themselves, but AXA produced the magic ingredient – cash and lots of it. The challenge for AXA is to convert the investment into success. The real winner should be 3i which extracted maximum value for its investment in Smart & Cook.
?Continued strong growth but more importantly it has dramatically increased its margins to around 20%, profits having jumped by over 200%.
?Continued highly creditable results. Turnover up 39%, margins improved. Time will tell if breakaway operation Castlecover will start to hurt it, no evidence of this yet. However, the over 50s is a huge and growing market so there may be room for them both.
?Turnover up 130% and producing a high operating margin at the same time means that Giles was unlucky not to make it on to the winners’ podium. Whil Chris Giles has had to dilute his holding to achieve this, he has wisely put shares into his staff’s hands. This should contribute significantly to the group’s long-term growth.
?Last year’s winner still growing strongly. Has built up a stock market following which will allow it to continue to build its business with significant acquisitions in the future.
?With income of over £12m and profits of £2.4m it is becoming a force to be reckoned with.