Market Musings 100825: Breakouts during the summer lull
Market Musings 100825: Breakouts during the summer lull
This week, a short comment highlighting the 3 stock markets and sectors that continue to demonstrate strong upwards momentum as we enter the traditionally weaker summer season for global stocks.
1. Japanese stocks: TOPIX index
Following the stabilisation of the Japanese yen against the US dollar in the Y142-Y150 range and the announcement of a trade deal with the US at a 15% tariff rate, Japanese stocks have responded to this removal of uncertainty by rallying to new all-time highs. This move has been naturally been led by exporters and by tech-related stocks such as Sony and Softbank.
Japanese yen trades in a Y142-Y150 corridor against the US Dollar
Japanese stocks remain reasonably valued, exhibit profitability that is far higher today than in recent years and also now offer greater shareholder returns (dividends + share buybacks).
TOPIX index breaks to new all-time high
Euro-hedged Japan ETF has returned 11% so far this year
2. European banks sector
European banks continue to offer a strong combination of cheap valuation (on P/E, price/book value), improved profitability (on ROE) and robust shareholder returns (dividend yield + share buybacks).
Q2 results were strong across the board for European banks, continuing to power the strong upwards sector momentum that has been in place since late 2022. Loan growth is slowly accelerating, while sector consolidation is an added bonus.
The Euro STOXX banks sector (BNKE) has recently broken out of a consolidation triangle following results, showing surprisingly strong momentum even as we enter August.
Euro banks: +150% since late 2022
UK banks also continue to follow a similarly positive pattern, latterly boosted by a favourable UK court ruling over liability relating to motor finance claims, limiting the cost to the main UK banks. In the short term, Barclays seems to show the strongest momentum and remains relatively cheap even versus the European banks sector average on P/E and price/book valuations.
UK domestic banks power upwards
3. Gold and Silver miners
Gold and silver prices continue to forge ahead, with physical gold around an all-time high close to $3400/ounce while silver is closing in on $40/ounce, still somewhat shy of the peak $50/ounce price reached in 1980 and 2011.
Unsurprisingly, these higher commodities prices are generating strong earnings and cash flows for gold and silver miners, driving the gold and silver miner ETFs up over 50% in US dollar terms, and close to 50% even in euro and GBP terms for the year so far.
Gold and silver miners respond to higher gold and silver prices
Bonus idea: BP Marsh
One UK stock I am looking at closely to add to my portfolio is BPM BP Marsh. I have owned this company before, and regret not hanging on to it…
BP Marsh is in the insurance sector but is not a classic insurer. Rather its business model is more as a private equity fund specialising in the insurance sector:
BP Marsh is a United Kingdom-based specialist investor in early-stage financial services businesses. The Company invests in various businesses, including insurance intermediaries, financial advisors, wealth and fund managers and specialist advisory and consultancy firms. The Company invests amounts of up to £5m in the first round and takes an approach to investment structures, reviewing companies ranging from start-ups to those that have developed to the next stage of growth. Its active investments are in the insurance intermediary sector. Its Insurance Intermediary investments are separated into two areas, including insurance brokers and underwriting agencies/managing general agents (MGAs).
Growth over the last few years has been very impressive, with net asset value growing by over 11% per year on average since 2005:
The share price has reflected this strong asset growth, vastly outperforming the UK insurance sector over the last few years:
BPM BP Marsh
After a particularly strong move up last year reflecting rapid book value growth (+42% for 2024 over 2023), the shares have consolidated this year. The stock remains cheap (price/book value 0.77x; Stockopedia Value Stockrank 84/100), high quality (36% ROE; Quality Stockrank 91/100) and holds GBP 74m of net cash, representing nearly 30% of the company’s market capitalisation.
While it only pays a 2% dividend yield, their 2025 share repurchase plan allows for the buyback of up to 9% of its shares. Overall then, it seems to be a good capital allocator.
Have a good week,
Edmund
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13 comments
I have loved all of the comments from readers regarding “Marsh”
The points that have been made have been valid The nature of “Marsh is that it’s profits have always been lumpy but over the years it has reliably produce the goods. It has a very experienced board I have held this share for many years and the company has made a 500% profit for me
I am still a buyer at around the present price
As usual Edmund, an informative, interesting, thought-provoking article. Many thanks, much appreciated.
Edmund, I looked at B.P. Marsh & Partners (LON:BPM) recently and was put off by the director remuneration.
They seem to have..... and forgive me if I am wrong here I'm going from memory..... a nil cost Share Options Plan, a Share Incentive Plan and a Joint Share Ownership Agreement. They are also entitled to a bonus if/when the company sells (for a profit) any of its stakes. From memory as well the performance criteria weren't exactly what I would call demanding.
I'm left wondering 'just how many bleeping bites of the cherry do management want?' Given they get a salary and an annual bonus on top of all of the above.
Then there is the issue of the founder (Brian Marsh) appointing his daughter* MD. She may well be the best qualified person in the world to do the job, but I don't think I'm being unduly harsh if I say 'I doubt it'.
It's also worth pointing out Brian Marsh holds 39% of the company, that is a positive or a negative depending on your point of view.
I'm more than happy to hear any counterpoints or corrections, I do/did think they looked very interesting until I checked the Director remuneration, and I appreciate others may not be put off by it. Just my tuppence worth.
* His daughter works under her married name, or her mother's maiden name, of Foulk
Cheers,
Jeremy
The best reason of all for Buy-Backs (if you have a position on the Board).
Some good points Jeremy. However I've just bought in with size this morning.
Felt the stats added up very well (it was a Nap) and I kept looking yesterday for something that was wrong. The red flag for me was no forecasts at all , we are only a few months aways from results and you'd expect something but nil. So does that mean the company doesnt know or just no confidence in their trading?
I then took a good look at its numbers over a long period and no big misses I could see, pretty much a steady line upwards. So its a risk but Ive gone in on an excellent track record, no debt, and a huge surge in profits this last set of results. Yes the share price has gone up but its traded side wise YTD and I believe a rerating will take place.
On your point re over the top benefits to directors , they are making the money so can afford it . You do tend to get that with a founder but you also get performance . And perform they have. Is the Daughter the best choice ? I get your point and maybe she not but nothing is every perfect and again the bottom line is the numbers are very good.
Whats more intersting is the age of the founder Brian Marsh being 83. Could it be ripe for a take over? One doesnt know but it must be on the cards.
Big Thanks to Edmund for highlightning this share. Excellent work.
Oaktree,
I do agree, as I said in my initial post, I was very impressed with what I saw. Right up until the Directors remuneration. Had it been less excessive I would most likely have bought in.
Again, I agree 'nothing is perfect' even Games Workshop (LON:GAW) have just introduced an LTIP. I do have a big problem with overly generous (read, 'greedy') remuneration, but not everyone does and it doesn't stop a company from being a good investment.
Regarding their "surge in profits" last year, I believe that was due to the fact they sold two investments. I don't think that happens in a typical year.
You could be correct on the take over options, it was certainly a thought I had whilst researching it. Although, I would suspect the fact he has appointed his daughter to such a high position would imply he wants the family to continue to control the business, or at least be involved in the top level of management it. But then a large cheque waved in front of someone's face is often surprisingly persuasive.
Cheers,
Jeremy
B.P. Marsh & Partners (LON:BPM) - And we now know where some of the 10% sold in the market last week ended up - CEO Brain Marsh bought a small tranche and Wellington increased from 5% to near 9.5% as per RNS announcements today.
Arghhhhhhhh - i am pretty sure mr marsh isn’t buying shares - if he is buying shares can someone confirm date and time of rns and confirm that it’s flagged as an actual purchase of shares and not simply his shareholding % increasing due to company buying back shares - if the tick box doesn’t say he is buying shares I have to resume he ain’t buying shares
Might the Brian Marsh Concert Party be buying shares with the intent to take BPM private?
Whate are the rules governing concert parties in such circumstances? Could they take it private at a discount to current price, or does each share purchase by the CP set a new floor?
Think they might be more interested in the IHT relief - now only 20% but better than nothing
Doesn't it count as an investment company and have not qualify for tax relief?
Then there is the issue of the founder (Brian Marsh) appointing his daughter* MD. She may well be the best qualified person in the world to do the job, but I don't think I'm being unduly harsh if I say 'I doubt it'.
Fair enough to be sceptical of whether she was the best person for the job. However it appears she was first appointed by the company in 2011 (so has been in this sector a long time), and was appointed MD in January 2016. So she has been in the MD position for over 9 years - in that time it would appear the business has performed well and I don't know of any complaints about her performance (please correct me if this is not accurate).
I do/did think they looked very interesting until I checked the Director remuneration
I have just looked at the remunerations for share options on the Stocko data. The data could be wrong but from what I am seeing, they are not excessive in the slightest. In fact I would say they are fairly tiny amounts and extremely fair from what I can see. If the Stocko data is wrong or I am working it out incorrectly then I apologies and would welcome being corrected. If the below is accurate, then they seem to be a company that is extremely fair to its shareholders.
2019 - No options exercised from what I can see
2020 - No options exercised from what I can see
2021 - No options exercised from what I can see
2022 - 9252 Shares (£26,400 at April 2022 share price - this was divided equally between 4 people)
2023 - 9536 Shares (£28,600 at April 2023 share price - again divided equally between 4 people)
2024 - 5968 Shares (£30,000 at April 2024 share price - again divided equally between 4 people)
2025 - 3423 Shares (£22,600 at April 2025 share price - divided equally between 3 people)
Hi Ed Thanks for this - Having recently come across a specialist Japanese fund - Zennor - has benefited greatly in the past couple of months and the Euro banks ETF can agree your sentiment. On B.P. Marsh & Partners (LON:BPM) - I asked only the other day - who has bought the 10% holding of PCS - sold last week and what might be the effect on price and liquidity going forward.