Source www.trendwatch.co.uk 1 September 2004

January 14 2005 is a date that will soon be engraved on the hearts of anyone managing or owning any insurance company, large or small. On that day, almost all general insurance companies, including insurance brokers, will be regulated by the FSA.

Trendwatch publications is, of course, also regulated by the FSA. As a media business, compliance with the massive FSA rule book is considerably less onerous than it is for business that hold client money for investment or insurance purposes. Even so, grappling with the FSA can be like mud wrestling a multi-headed hydra.

To give one small examplee, we recently found out that, to add letters Ltd after ourname )no other changes to the business whatsoever) requires the completion of between 50 and 60 pages of forms and the preparation of much other supporting documentation. The FSA will not even deign to look at it unless it is accompanied by a cheque for 1,500. If everything then seems to be in order, the FSA undertakes to deal with the matter within 6 months.

If, in our infinte naivete, we had failed to realise this palava was a legal requirement, the MOther of All Parliaments has decreed that we would be committing a criminal offence, and liable to be detained at Her Majesty's pleasure at a house of correction and her learned judge's choosing.

This is what the FSA regards as'light touch' regulation which minimises disruption and cost ot businesses.

Now imagine how tricky things can get if you attempt something really complicated such as taking on a member of staff.

The FSA estimates that it already has about 10,000 in the mortgage and general insurance field by the short and curlies. It estimates that at least another 10,000 business will be dragged kicking and screaming into the brave new world of 'light touch' regulation. Around 2,500 insurance brokers will be lightly touched by the FSA on January 14.

But, as everything in life, one mans Kafkaesque nightmare is another man's business opportunity. Which brings us to Broker Network Holdings (BNH)

BNH floated on AIM as recently as May this year (raising 2m in the process), so most investors will know little about it, if indeed they've heard of it atall. We're recommending it because we feel that burgeoning profitability will soon make it a lot better known.

As the name suggests, BNH exists to build a network of independent insurance brokers, all operating within the BNH framework. This follows a path wellbeaten by IFA's, accountants and dentists. BNH is the longest established player in its field and believes that it has a stronghead-start, and a great deal more credibility than other 'me too' imitators.

The system works like this: as an independent insurance broker, you undertake to pay 95 a month to BNH. You also undertake to pass all your insurance business premiums through BNH. BNH places the insurance business with the giants such as AXA, Norwich Union, Royal and Sun Alliance and Cornhill. The members receive enhanced commission from the insurance companies because of the preferential status granted to BNH. Since BNH deals with the placing of the insurance, this greatly reduces the credit risk of the individual members.

BNH takes 1.5% of the premiums from its members and, in return, provides members with a number of valuable support services, including access to Lloyds of London, centralised back-office IT support, marketing assistance, access to e-commerce, staff training and development, business management and monitoring... and FSA compleance support.

BNH is also prepared to purchase broking firms outright where the opportunity presents itself. There are believed to be a large number of small owner-managed brokers where the owner is approaching retirement. For many of them selling theri business to BNH, typically for around 0.3m, rather than grappling with the FSA, is probably an attractive option. So far BNH has acquired 9 such brokers.

Since it was founded in 1994, it has absorbed 133 brokers into its network and plans to acquire about 90 more over the next 5 years. Out of the estimated 19bn paid in insurance premiums in the UK every year, an est 80% is handled by insurance brokers. Most of this goes to through the big brokers, but about 3bn a year (typically commercial rather than personal business) is processed by the 2,500 small so-called 'community brokers' that form the BNH network.

hat represents the extent of BNH's market pond.

At time of floatation, BNH est that no more than 12% of its target broker had aligned itself with any particular network. Clearly there's plenty of scope for growth.

The company is already profitable. Its last full year results were published in July and showed a profit for the principle trading subsidiary - the PLC holding company had not yet been created - of a record 0.77m up rom 0.70m. 27 new members were taken on.

Brewin Dolphin reckons it will make 1.77m this year, rocketing to nearly 3m in 2005-06. If these estimates are correct, it puts BNH on a forward p/e of 6, which is extremely low for the sector, especiallyfor a company whose profits are growing at such a rapid rate

BUY

Looks like next year will be a good year for bnh given their recent trading statement. I think price has held back due to a seller. But now I think he is out given the 3 blocks of 10k sells over the past few days.

I would expect some coverage over the next few weeks on this co.

The following was from Shares Mag:

Bull Points
- Results will beat forecast
- Benefiting from changes in savings regulations
- Received full Lloyds accreditation in Dec
- Share overhang on Capricorn stake should clear
Bear points
- Free float limited, shares volatile
- Membership growth slowed this year.

Results out 13 Jan and the SP should take off. DYOR and good luck to all investors.

A very good day indeed for all holders. Long overdue imho.

Can't wait for results

So many buyers around. This is good to see!!!

GL all

Will be up early doors tomorrow folks to see the interims.

GL all holders. Am still as confident as ever with these puppies..

Broker Network Holdings plc
(AIM:BNH)

Interim Results for the Six Month Period to 31 October 2005

97% Increase in Operating Profit Before Taxation and Amortisation

5 Further Acquisitions Completed

Broker Network Holdings plc ('Broker Network' or 'the Group'), the network
organisation for independent community insurance brokers, today announces its
interim results for the six month period to 31 October 2005.

Financial Highlights

Turnover increased by 56% to 5,852,000 (2004:3,747,000)
Turnover from continuing operations increased by 39% to 5,215,000
Operating profit before amortisation up 97% to 1,502,000 (2004:763,000)
Operating profit up 71% at 983,000 (2004:573,000)
Group operating margin before amortisation 25.7% (2004:20.4%)
Profit before tax increased by 60% to 1,133,000 (2004:709,000)
Profit before tax and goodwill amortisation up 84% at 1,651,000 (2004:899,000)
Fully diluted earnings per share up 35% at 4.66p (2004: 3.46p)

Operational Highlights

5 acquisitions completed making total number of brokers acquired 16
Good prospects for further acquisitions as enquiry level remains high
Number of Network Members increased by 6 to 145
Strong pipeline of new Members
Progress across the Group continues in line with plans

Well ? Are people happy with the results or disappointed ? Why ?

Very happy,

The company is growing nicely, making good profits, is likely to pay a dividend at year end, good sound board taking modest salarys, has plenty of cash, acquiring brokers on very sensible terms, member numbers going up... that enough reasons?? ;-)

Plenty more to come imho.

DYOR... these will bounce..

I know that's why I'm in.

Looking for around 200p.

These are bound to be covered in financial press over next week or so.... Shares mag put something in last week that BNH are reporting. No reason why these wont be a BUY in next edition.

All imho.

Welcome aboard. How many did you get??

Oh - just a few. Not many fundies available at the mo, few bills to pay and all that. Will add on further weakness though.

From Growth Company Investor - Strong Buy

Broker Network - STRONG BUY
Companies: BNH
13/01/2006
Broker Network, the network of independent community insurance brokers, has cheered investors with premium interim figures to October.

Grant Ellis, chief executive, reported record profits for the half pre-tax profits adding back goodwill rose 84% to 1.65m on turnover lifted 56% to 5.85m. Operating margins clipped up to 25.7% (20.4%).

BNL, which focuses on personal and commercial general insurance, is a consolidation play with great growth prospects. It provides small local insurers, run as lifestyle businesses, and insurance brokers, with support services such as IT and marketing. As well as providing a natural exit for aged principals, small brokers join for better bulk buying power with insurers, to gain access to more insurance markets, as well as BNL's enhanced regulatory compliance services.

Harrogate-based BNL joined AIM at 71p in 2004 and has completed 16 acquisitions to date for 7.4m, acquired five brokers during the half for 4.2m. It apparently has a spate of prospects in the pipeline to add to its 145 strong network. We are a retirement proposition and the penny seems to have dropped, explained Ellis. Vendors now see us as a good source of retirement funding.

In terms of trading, he flagged up falling insurance premium rates for bigger ticket business, but explained the impact on members would be softened as they generally write smaller ticket business.

BNL boasts solid balance sheet credentials a 1.4m first half net inflow meant the group finished the half with over 2.1m cash. For the full year, analysts suggest a jump in pre-tax profits from 1.8m to 2.7m upgraded from 2.65m on 11.6m sales, giving earnings of 13.5p and a prospective p/e of 8.6. Strong buy.

James Crux
Market cap: 17.47m
PE Forecast: 8.6
Share price: 116p

I like the look of this one legend and see that its on a very cheap forward P/E of 8.6.

Had a quick look through the thread and note that one person (in 2004) was a little worried about the number of options that could dilute the cake and the SP any thoughts on this yourself?, your opinion is much appreciated. I am tempted to buy but have to do a bit more research. Dont know much about insurance and have always generally steered clear therefore my hesitation. Whats this about falling premiums for big ticket items, anything to be concerned about?.

Ps, whats the spread normally like, does it move in after 9am etc etc?.

Cheers GF.

Hi GF,

Yes still a screaming buy imho. This is by far my largest holding mate.... 3x more than tgp. Have been in these since 61p. The company has done everything and more since floatation. The directors are paid modest salaries and have large share holdings. This is good to see imho.

They have approx 2m cash and are set to smash the 2.2m for 06 profit target that was initially set by house broker teather and greenwood. With a mkt cap of 17m, these seem cheap i think.

they are even forecast to pay a dividend in september of 1p, increasing to 1.5p next year. I think that these are an undiscovered growth story and can go all the way.

Their reason for floatation was to raise cash to fund acquisitions. By acquisitions, i mean insurance brokers. Since jan 14 last year, the fsa has regulated general insurance and as you are probably aware, the demands of the fsa can often be too much for the one man band insurance broker, so enter BNH, they acquire the broker at unbelievably cheap cost on very sensible terms. Plus also since regulatory demands have been at their highest, more and more firms are joining a network - hence bnh member numbers are at an all time high. At interims, they stood at 145. Any investor already knows that they smashed the 150 milestone in november as we all received a shareholders newsletter with this on!!!

Sorry about the rushed response, but if you want further info, i will give you my e-mail address.

The above isn't financial advice, just my honest opinion.

I would have thought shares mag would cover these on thurs and ic on friday.

Incidentally shares mag tipped these at 1.30 as a top share for 2005. Since then, they have done everything since then that they set out to do, with no negative news.... so at 1.185 today, I still think they are worth a punt.

Please DYOR and let us know what you think.

Superb post that legend, I got in earlier today but your words are very reassuring. Looks very cheap to me. Theres a post on the TMF iwill transfer if I can find it again.

cheers GF.

Please do sir, the more posts on here the merrier.

I feel like i am talking to myself on here sometimes. I know it isn't the most interesting of companies, but it certainly hasn't disappointed to date.

One day soon these will fly imho.

From the other side after speaking to teathers:

greengiant - 17 Jan'06 - 08:50 - 38 of 38 (premium)


Gents,

Just got off the phone after a 20 minute conversation. Headlines are as follows:

First off congratulated BNH on the fantastic set of results - They do not seem to be a company that blows their own trumpet.

Started to talk about EPS and the basic response was a misunderstanding between the House Broker and the company. They will take on board the need to report EPS before and after amortisation.

On valuation - they are extremely disappointed with the current shareprice and feels that the market currently undervalues the company by up to 50%. This is something that will be worked on.

Belief is that the full year EPS is light at 13.54p, especially considering that the half year EPS was 8.24p. They have no objection with the T&G forecast, it has been prepared with limited input from the company and they would rather have it upgraded and exceed it.

In terms of the market, the feeling is that there is not as much downward pressure on prices as was first anticipated toward the back end of last year. The Broking business can raise its turnover to around 20m without any significant increase in overheads as the majority are centralised - once 20m is reached then there will be another step change.

Pipeline of acquisitions are very good and 3 are nearing completion - it is anticipated that these will be completed well before year end. Again on EPS - it is anticipated that THB will make a good contribution in the 2nd half as we only had 1 month worth of contribution in the first half.

Brought up the question of PR - the company invited several analysts to the briefing after results were issued. Didn't tell me which ones, but stated that there were all the major publications there. Also talked about greater newspaper coverage. Again taked this on board.

Other than that - talked about cash flow and balance sheet - the company would rather fund acquisitions from debt rather than issue new paper. Although if a significant acquisition came along then would look at a placing although this would have to be significant.

All in all - very upbeat, would encourage people to speak to the company to hear it for themselves - sorry for the jumble - note taking was never my strong point.

Cheers

gg

greengiant - 17 Jan'06 - 12:17 - 44 of 44 (premium)


Sorry the other thing was all shares have been placed - and they are not aware of any sellers. They believe there is one person looking to buy. I will look over the trades but would expect to see a T buy pattern.

Cheers

gg

Broker Network Holdings appear to be well organised and i do not hear anything ill of them in the trade.
the factor i do not like is their movement into the purchase of insurance brokers. thus BNH become more of an insurance broker than a "broker network"
........and also that it is a racing certainty the the dreaded (dreadful) FSA will required full disclosure of all direct commission and indirect benefits by this time next year. the broking industry have put up negliable written comments to the FSA in response to the FSA demand for written comments from the insurance broking industry so there is little organised campaigning against the FSA move.

the problem with commission is that % rates apply for different classes of business. the really lucrative rewards are on certain (high premium) commercial policies. the rate might be 20% on a 50000 premium. That 10000 commission can be earned for a token amount of work if it is simply the renewal of a policy. After commission disclosure perhaps 1000 may be a negotiated figure. on top of present commission the broker can enjoy over-riding benefits from the insures ...including extra commission depending upon the volume and profitability of business done with an insurer. all these cosy arrangements are likely to come to an end.
in their recent results BNH announced that they had negotiated extra "cosy" arrangements with certain insurers. the cosier the arrangements the greater the fall

In investors chronicle this morning:

Broker Network's core business is to provide improved terms for the average small high-street insurance broker by acting as an intermediary between them and the leading insurers.

As well as training and support on regulatory compliance, it also provides an exit strategy for the typical high-street broker looking to retire. The company now has 145 'members', together with 16 retail brokers that it owns outright. For each 1 of premiums generated, brokers receive 14p, while Broker Network takes an average 1.5p, plus 0.3p from the insurers. On this basis, income from members averages 28,000 a year, but rises to 266,000 for the brokers it owns. Before goodwill amortisation, pre-tax profits rose 84 per cent to 1.65m and, for the full year, Teather & Greenwood expects profits of 2.72m and adjusted EPS of 13.54p (from 1.8m and 8.7p, respectively, in 2004-05).

Broker Network boasts a strong and improving cash flow, helping to bankroll its bolt-on strategy, and six new members were added in the first half. The shares have risen 20 per cent since November, but still rate good value.

Good to see these bounce from here. Thanks for posting ic article wraz. They are right, I think they do represent good value to buy... There is plenty more upside in this growth story imho.

I think these will slowly drift up from here...