Johannesburg, 23 November 2020 – GCR Ratings (“GCR”) has reviewed the ratings of CBZ Asset Management (Private) Limited, trading as Datvest under the recently released Criteria for Management Quality Ratings, July 2020.
CBZ Asset Management (Private) Limited’s management quality rating has been affirmed at MQ2(ZW), with an Evolving Outlook.
|Rated Entity||Rating class||Rating scale||Rating||Outlook/Watch|
|CBZ Asset Management||Management Quality Rating||National||MQ2(ZW)||Evolving Outlook|
In July 2020, GCR announced that it had released new criteria for all management quality ratings. This methodology is titled Criteria for Management Quality Ratings. As a result, the rating was placed “Under Criteria Observation”. Subsequently, GCR has finalised the review under the new methodology. As a result, the rating has been removed from ‘Under Criteria Observation’ and revised in line with the new methodology.
Management Quality Ratings are on an alpha-numeric rating scale (MQ1 (highest) to MQ5 (lowest)). Manager quality (“MQ”) ratings are not credit ratings and are not measuring the relative ability of an entity to meet its financial obligations. The MQ ratings assess an entity’s organisational structure, risk management characteristics and operational controls and provide the market with an opinion on the overall quality of the organisation, including management characteristics and operational practices.
GCR has accorded the above MQ rating on CBZ Asset Management (“Datvest”, “the company”). The rating reflects good management and capital preservation augmented by growing revenues and funds under management (“FUM”) in a stable control environment. The MQ rating was based on the following key criteria:
Corporate profile: Datvest is a wholly owned subsidiary of CBZ Holdings Limited (“CBZHL”, “the group”), the largest listed financial services group on the Zimbabwe Stock Exchange (“ZSE”). The company was established in 1990 and had FUM of ZWL7.0bn at 30 September 2020, making it one of the largest licenced asset managers in Zimbabwe. Datvest has a stable management team combined with experienced senior portfolio management. Datvest’s client base has remained fairly stable, despite the volatility in investment markets. The company serviced pension funds (68), private clients (288), and unit trusts (3267) as at 30 September 2020. Pension funds are the main asset class, accounting for 75% of FUM at 30 September 2020 compared to 76.1% in the 2019 comparative period.
Financial sustainability: GCR considers Datvest’s financial standing to be sound. The company is well capitalised. The company held GCR adjusted capital of ZWL124.3m at 30 September 2020, above the regulatory minimum requirement. Capital accumulation has been supported by sound internal earnings generation and retention. In determining the nominal capital, GCR has excluded income and related tax from investment property revaluations. Management fee income comprised 71.1% of total income at 30 September 2020 (3Q2019: 33.8%). However, we expect a shift in the mix following investment property revaluations.
Portfolio management: Portfolio management is considered sound. Discretionary portfolios are spread over three major asset classes: equities, fixed income/money market and property. Datvest’s returns have been in line with the benchmark index. The negative effects of macroeconomic weakness that continue to depress expected investment returns, have led Datvest to reduce its exposure to fixed income investments and simultaneously seek the ‘safe-haven’ investments in properties. Fixed income investments are largely with highly rated financial institutions, taking cognisance of liquidity requirements. FUM increased to ZWL7.0bn at 30 September 2020 from ZWL1.2bn at 31 December 2019. Significant FUM growth was partly as a result of translation of USD denominated properties in light of the significant deterioration of the exchange rate. Also, up until the ZSE market was closed, the market was performing very well. Furthermore, new business with companies that pay in USD resulted in inflated when converted to ZWL. Going forward, we expect a continuation of value preservation strategies, including reducing exposure to overvalued equities, increasing ‘safe-haven’ investments in unlisted properties, reducing exposures to fixed income investments and seeking other alternative investment exposure.
Risk management: Risk management is stringent and has become more prominent due to the volatility in the country’s capital markets. The company’s flat organisational structure has allowed management to be closely involved in all key transactions. Risk is managed holistically at senior management/board levels, with Datvest benefiting from the group’s operational risk control framework. It’s operational and IT environment provides efficient work flow, matching the funds’ needs. Investment decision making is highly disciplined, primarily driven by a risk model, with implementation by the portfolio management team under strict portfolio volatility control. Despite this, the company’s investment portfolios exhibit high counterparty concentration due to its selective investment criteria coupled with the challenging economic conditions. The single largest and top 20 clients (most of them pension funds) contributed 15.1% and 79.3% to FUM respectively at 30 September 2020.
The outlook is evolving premised on the volatile operating environment, monetary policy, exacerbated by hyperinflation creating high likelihood of frequent change on the financial profiles of financial institutions operating therein. In this regard, GCR will increase monitoring and surveillance of rated peers.
An improvement in the company’s market share, fund performance, portfolio diversification, and operating environment could lead to an upward movement in the rating. Negative rating action may arise from loss of market share/key clients, as well as reputational damage to the parent.
|Primary analyst||Vimbai Muhwati||Financial Institutions Analyst|
|Johannesburg, ZA||VimbaiM@GCRratings.com||+27 11 784 1771|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for Management Quality Ratings, July 2020|
|GCR Ratings Scales, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, May 2020|
|GCR Financial Institutions Sector Risk Score, August 2020|
|Jurisdictional Supplement for Criteria, July 2020|
CBZ Asset Management
|Rating class||Review||Rating scale||Rating||Outlook/Watch||Date|
|Management Quality Rating||Initial||National||A(ZW)(mq)||Stable||December 2015|
|Balance Sheet||Also known as Statement of Financial Position. A statement of a company’s assets and liabilities provided for the benefit of shareholders and regulators. It gives a snapshot at a specific point in time of the assets the company holds and how they have been financed.|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Diversification||Spreading risk by constructing a portfolio that contains different exposures whose returns are relatively uncorrelated. The term also refers to companies which move into markets or products that bear little relation to ones they already operate in.|
|Exposure||Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding. In insurance, it refers to an individual or company’s vulnerability to various risks|
|Income||Money received, especially on a regular basis, for work or through investments.|
|Interest||Scheduled payments made to a creditor in return for the use of borrowed money. The size of the payments will be determined by the interest rate, the amount borrowed or principal and the duration of the loan.|
|Issuer||The party indebted or the person making repayments for its borrowings.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Long Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Margin||A term whose meaning depends on the context. In the widest sense, it means the difference between two values.|
|Market||An assessment of the property value, with the value being compared to similar properties in the area.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Rating Outlook||See GCR Rating Scales, Symbols and Definitions.|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Short Term Rating||See GCR Rating Scales, Symbols and Definitions.|
|Short Term||Current; ordinarily less than one year.|
SALIENT POINTS OF ACCORDED RATING
GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
The credit rating has been disclosed to CBZ Asset Management (Private Limited), trading as Datvest. The rating above was solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the rating.
CBZ Asset Management (Private) Limited, trading as Datvest participated in the rating process via video conference management meetings, and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The information received from CBZ Asset Management (Private) Limited, trading as Datvest and other reliable third parties to accord the credit ratings included:
- The audited financial results to 31 December 2019
- Unaudited interim results as at 30 June 2020
- Unaudited management accounts as at 30 September 2020
- Asset allocation information to 30 September 2020
- A breakdown of the investment portfolio and related facilities
- Other related documents.
Due to severe foreign currency shortages, hyperinflation and significant monetary and exchange control policy changes over the last 12-18 months in our opinion, the national scale credit ratings on Zimbabwean entities are not directly comparable to credit ratings and risk scores within other markets. Furthermore, outlook statements may fail to capture forward looking trends due to the extreme volatility in the operating environment and audited opinions. See the latest Jurisdictional Supplement for Criteria, published July 2020.