Johannesburg, 28 November 2016 — Global Credit Ratings has affirmed the national scale manager quality* rating accorded to CBZ Asset Management (Private) Limited of A(ZW)(mq); with the outlook accorded as Stable. The rating is valid until November 2017.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above manager quality rating to CBZ Asset Management (Private) Limited, (trading as “Datvest”, “the company”), based on the following key criteria:
The manager quality (“MQ”) rating of Datvest reflects GCR’s assessment of its corporate profile, financial sustainability, skill and experience in portfolio management, and sufficiency of its risk management, controls and systems. Corporate profile: Datvest is a long-standing domestic brand with a 26 year track record and market share of Assets Under Management (“AUM”) of approximately 6% at 30 September 2016, making it the third largest asset manager in Zimbabwe out of a total of 16. The company is a wholly owned subsidiary of CBZ Holdings Limited (“the group”), the largest listed financial services group on the Zimbabwe Stock Exchange. Datvest draws on a stable and experienced senior management team.
Financial sustainability: GCR considers Datvest’s financial standing to be comfortable in light of its close association with the group (including access to technical, systems, credit, and research support), and its well capitalised position, holding core capital of USD2.6m at 1H F16, against a regulatory requirement of USD0.5m. Despite improved cost containment (with operating costs increasing by only 2.2%), in F15 net profit declined by 56.0% to below USD0.2m, due to a decline in AUM which resulted in a decrease in fee and commission income. Consequently, ROE declined to 5.9% (F14: 14.3%). Revenue remained under pressure in 1H F16 due to the aforementioned factors, but the company’s earnings generation is still considered adequate.
Portfolio management: The company implements a top-down investment approach that is monitored on a weekly basis by an executive committee. Fixed income investments (which constitute the largest portion of AUM) are largely placed with highly rated financial institutions, taking cognisance of liquidity requirements. Asset selection is primarily based on research driven fundamental valuations (focusing on value investments that are underpriced by the market, and top tier companies). This is supplemented by technical analysis, in particular, when optimising entry and exit opportunities in relation to equity. AUM declined by USD3.6m (2.7%) to USD128.8m year-on-year to 30 September 2016, largely due to a fall in foreign investment levels and negative returns across all blue chip companies. Nonetheless, the company has continued to meet its investment performance objectives since inception, outperforming its set benchmarks. Looking ahead, the weak macroeconomic conditions are expected to persist, increasing the pressure on companies’ financial performance and leading to further net foreign investor outflows.
Risk management: Risk management 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 tight 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 (which have resulted in many company failures).
An improvement in the company’s market share, fund performance, portfolio diversification, and overall operating environment could lead to an upward movement in the rating. A negative rating action may arise from loss of market share/key clients, continued pressure on profitability, as well as a reduction in available support from the group (which supports the current rating).
*Note that MQ ratings are classified as ‘non-credit ratings’ (refer to GCR’s published rating scales and definitions).
|NATIONAL SCALE RATINGS HISTORY|
|Initial/last rating (December 2015)|
|Management Quality rating: A(ZW)(mq)|
|Rating outlook: Stable|
|Primary Analyst||Committee Chairperson|
|Kuzivakwashe Murigo||Omega Collocott|
|Credit Analyst||Sector Head: Financial Institution Ratings|
|(011) 784-1771||(011) 784-1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Funds and Asset Managers, updated March 2016
Datvest rating report (2015)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
CBZ Asset Management (Private) Limited participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The rating has been disclosed to CBZ Asset Management (Private) Limited with no contestation of the rating.
Information received from CBZ Asset Management (Private) Limited and other reliable third parties to accord the rating included:
- Audited financial results as at 31 December 2015 (and one year of comparative numbers)
- Unaudited interim results at 30 June 2016
- Asset allocation information from January 2012 to 30 September 2016
- Latest internal and/or external audit report to management
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
The rating above was solicited by, or on behalf of, CBZ Asset Management (Private) Limited, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Audit Report||A written opinion of an auditor (attesting to the financial statements’ fairness and compliance with generally accepted accounting principles).|
|Capital||The sum of money that is invested to generate proceeds.|
|Corporate Governance||Refers to the mechanisms, processes and relations by which corporations are controlled and directed, and is used to ensure the effectiveness, accountability and transparency of an entity to its stakeholders.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Diversification||Spreading risk by constructing a portfolio that contains different investments, 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.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|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.|
|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||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|National Scale Rating||Provides a relative measure of creditworthiness for rated entities only within the country concerned. Under this rating scale, a ‘AAA’ long term national scale rating will typically be assigned to the lowest relative risk within that country, which in most cases will be the sovereign state.|
|Net Profit||Trading/operating profits after deducting the expenses detailed in the profit and loss account (including taxes).|
|Operational Risk||The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. This includes legal risk, but excludes strategic risk and reputational risk.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Security||An asset deposited or pledged as a guarantee of the fulfilment of an undertaking or the repayment of a loan, to be forfeited in case of default.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Stock Exchange||A market with a trading-floor or a screen-based system where members buy and sell securities.|
For a detailed glossary of terms utilised in this announcement please click here
GCR affirms CBZ Asset Management (Private) Limited’s rating of A(ZW)(mq); Outlook Stable.