Daily briefing: Tuesday - Jelf bucks the trend

So it can be done. Jelf’s impressive results today are a sign that brokers can continue to grind out earnings and revenue in really tough conditions.

Revenues were up 2% to £72.1m for the year ending September (2010: £70.4m) and underlying earnings were up 3% to £10.1m (2010: £9.8m). Debt was cut by more than half, from £7.3m to £3m.
 
In the boom times, these results wouldn’t be anything to write home about. But in today’s economy, the results are quite impressive.
 
Jelf’s results are strong compared to its peers’. Towergate’s nine-month underlying earnings fell 12% to £90.6m from £102.8m. Willis saw its nine-month profit drop 50% as an 11% growth in expenses offset a 5% growth in turnover.
 
So how did Jelf achieve these results?
 
Slowly, slowly catchy profit

Jelf has taken a very slow approach to integrating its acquisitions, letting them retain their identity for quite some time before eventually rolling them into the Jelf brand. That’s probably helped company cohesion, and the knock-on effect of that is retention of clients.
 
Then there’s Purple Partnership, which under Les Brewin, a seasoned head in knowing what brokers want, has steadily expanded its numbers.
 
Finally, Jelf has put a lot of effort into widening its range of services and paying close attention to the needs of existing clients.
 
In its core markets, such as Bristol, Jelf has been around a long time and is part of the corporate community. It has not forgotten its roots.
 

The results are all the more remarkable if one looks back two years ago, when the debt-laded firm looked like the business was vulnerable to a takeover from a rival consolidator.
 
Instead, private equity firm Capital Z came along with institutional investors, ploughing money into the business in return for equity. That’s now looking like a shrewd investment.
 
Private equity under pressure
 
Talking of private equity, today we learn that Brit’s backer CVC is facing a potential £1.7bn loss on one of its investments. There are concerns that CVC will not be able to refinance the debts of Nine Entertainment, due to be paid in 2013.
 
So what is going on in the private equity world?
 
If, as seems likely, the eurozone crisis rolls on into 2012, private equity could be heading for the rocks.
 
Many of the big buy-out deals were completed in 2007 and will need refinancing in 2013. But are banks, desperate to de-leverage and preserve capital, really going to cough up to refinance these deals?
 
More likely, the banks will be keen for private equity-backed firms to float or sell, even if investor sentiment is negative.
 
Private equity lives by the unyielding belief that markets will always rise, assets can be sold off and debts paid down. But, in these economic conditions, what we could be seeing is the bottom dropping out of the market.
 
That could mean huge write-downs for private equity, and takeovers of their assets – including those across the insurance industry – at knockdown prices.
 
The next two years are likely to separate the shrewd private equity investors from those that have buckled under the weight of their own excessive borrowings.