Lagos, 28 March 2022 – GCR Ratings (“GCR”) has affirmed FCMB Asset Management Limited’s national scale long and short-term issuer ratings of BBB+(NG) and A2(NG) respectively, with the Outlook revised to Positive from Stable.
|Rated Entity||Rating class||Rating scale||Rating||Outlook|
|FCMB Asset Management Limited||Long Term Issuer||National||BBB+(NG)||Positive Outlook|
|Short Term Issuer||National||A2(NG)|
FCMB Asset Management Limited’s (“FCMB AM” or “the asset manager”) ratings reflect its moderately strong competitive position, ungeared balance sheet, and sound cash generative capacity, which has over time bolstered cash flow and liquidity position. Cognizance is also taken of the asset manager’s membership of an established financial services group (FCMB Group Plc (“the Group”)), which has continued to support its competitiveness and products distribution. However, FCMB AM’s ratings are capped at that of the Group, given the Group’s elevated credit risk profile.
FCMB AM is domiciled in Nigeria and generates most revenues from the local markets, though offers investors foreign currency denominated products and services. The asset manager ranks among the mid-tier players within the Nigerian asset management space, with a total Asset Under Management (“AUM”) of N105.8bn and an estimated market share of c.5% as at FY21. While FCMB AM’s AUM grew steadily between 2016 and 2020, a 6.9% moderation in FY21 reflects the relatively low yields vis-à-vis some investors’ expectations. Going forward, FCMB AM’s imminent plans to launch the alternative assets funds and the implementation of its digital transformation initiatives in the near term is likely to stimulate AUM growth and market position within the short to medium term. Furthermore, FCMB AM continues to leverage its membership of the Group for product distribution and cross-selling opportunities. Management & Governance is a neutral rating factor, as it is in line with international best practices.
FCMB AM’s earnings evidenced an upward trajectory over the last five years, with gross revenue registering a CAGR of 35.4% on the back of the strong growth in AUM and operational scale within the review period. Typical of an asset management company, the relatively stable management fees, and commission remained the major components of the revenue base, accounting for a sizeable 92.4% of gross revenue at FY21. Growth in this revenue stream is likely to be sustained over the rating horizon due to the strong growth prospects in AUM in line with the asset manager’s outlined strategy. Further supporting profitability is the lean cost structure the asset manager historically exhibited, which benefits from the shared services within the Group. As such, the cost to income ratio remains competitive at 37.4% at FY21 (FY20: 36.8%). Overall, we considered FCMB AM’s profitability metrics to be healthy, with EBITDA margin registered at 62.6% in FY21 (FY20: 63.2%) and averaging 57.4% over a five-year period, comparing favourably with peers.
Leverage and cash flow assessment is considered a positive rating factor, given the absence of debt on the asset manager’s balance sheet. We expect this trend to be sustained going forward due to the asset manager’s nature of operations and the good cash flow management.
FCMB AM’s liquidity position is viewed to be robust, underpinned by good cash flow generation, strong balance sheet liquidity, and limited liability risk. As a result, liquidity sources consistently covered the anticipated uses by more than 2x over the review period and stood at 2.4x at FY21 (FY20: 2x). We expect liquidity metrics to be maintained within a similar sound range over the next 12-18 months on the back of the sizeable quantum of liquid assets. There is also no refinancing or covenant risk, given the ungeared balance sheet.
The positive outlook mirrors that of the Group, given that FCMB AM’s ratings are currently capped at that of the Group. The outlook also reflects GCR’s expectations that FCMB AM will sustain its conservative cash flow management, which will continue to underpin liquidity, and the ungeared position over the rating horizon. Furthermore, we believe the successful launch of the anticipated alternative asset funds and other customer-centric products within the next 12-18 months will provide the necessary growth impetus for AUM over the short to medium term, thereby stimulating cash generative capacity, liquidity, and earnings.
An upgrade could arise from the positive movement in the Group’s ratings on account of material improvement in capitalisation, internal capital generating capacity, and risk profile. Also, the sustenance of FCMB AM’s balance sheet strength and earnings stability will be positively considered. Conversely, a negative rating action on the Group stemming from rapid deterioration in capitalisation and risk profile, as well as a simultaneous deterioration in the asset manager’s key performance metrics.
|Primary analyst||Yinka Adeoti||Financial Institutions Analyst|
|Lagos, NG||Adeoti@GCRratings.com||+234 1 904 9462|
|Committee chair||Matthew Pirnie||Group Head of Ratings|
|Johannesburg, ZA||MatthewP@GCRratings.com||+27 11 784 1771|
Related Criteria and Research
|Criteria for the GCR Ratings Framework, January 2022|
|Criteria for Rating Asset Managers, November 2019* appendix to the Criteria for Financial Services Companies, May 2019|
|GCR Ratings Scale, Symbols & Definitions, May 2019|
|GCR Country Risk Scores, December 2021|
|GCR Financial Institutions Sector Risk Score, December 2021|
FCMB Asset Management Limited
|Rating class||Review||Rating scale||Rating||Outlook||Date|
|Long Term issuer||Initial/last||National||BBB+(NG)||Stable||March 2021|
|Short Term issuer||Initial/last||National||A2(NG)||Stable||March 2021|
Risk Score Summary
|Rating Components & Factors||Risk scores|
|Country risk score||3.75|
|Sector risk score||2.00|
|Management and governance||0.00|
|Cash flow and Leverage||2.00|
|Earnings vs. Risk||1.75|
|Capital||The sum of money that is invested to generate proceeds.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|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.|
|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.|
|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.|
Salient Points of Accorded Ratings
GCR affirms that a.) no part of the ratings 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 FCMB Asset Management Limited. 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.
FCMB Asset Management Limited participated in the rating process via telephonic 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 FCMB Asset Management Limited and other reliable third parties to accord the credit ratings included:
- Audited financial results as at 31 December 2021
- Four years of comparative audited numbers
- Other related documents.