Lagos Nigeria, 18 March 2020–Global Credit Ratings has affirmed the management quality rating assigned to FSDH Asset Management Limited of A-(NG); with the outlook affirmed as Stable. The ratings are valid until November 2020.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to FSDH Asset Management Limited (”FSDH AM” or “the manager”) based on the following key criteria:
FSDH AM is a known brand in the asset management space, underpinned by its track record of over a decade and half. Supportive of FSDH AM’s market profile was its status as a wholly owned subsidiary of FSDH Merchant Bank Limited (“FSDH MB”), the erstwhile parent. Also, FSDH AM’s current position as a member of FSDH Holding Company Limited following the adoption of a holding company structure during the second half of FY19, is considered positive. The manager has a reputation for managing gratuity funds, endowment, real estate and investment trust and savings portfolios for individuals, high net worth individuals and corporates. The management team have been relatively stable and considered to possess adequate knowledge and experience of the industry.
Shareholders’ funds stood strong at N1.2bn at FY18, underpinned by its sound internal capital generating capacity. Total operating income was up by 4.3% to N631.3m in FY18, driven by a 21.3% growth in fees and commission income. Operating expenses registered a year-on-year decline of 7.4%, which saw the cost ratio to a lower 33.6% (FY17: 37.9%) for the period. As such, pre-tax profit ended the period at N419.0m, representing a sizeable 11.4% increase from the previous year, but measured slightly below the budget. However, net profitability closed the year at a relatively flat N326.9m (FY17: N327.7m), mainly due to high tax pay-out during the year. Consequently, ROE closed at 26.7% from 28.0% in FY17. Unaudited result as at August FY19 reflects performance to be slightly below that of same period in FY18, albeit management expects performance to improve by year-end.
Portfolio management and re-balancing are performed on an ongoing basis. Investment decisions are vested in an investment committee, comprising eight members (including other senior officers within the group as well as an independent member). Total funds under management (“FuM”) increased to N67.0bn at FY18 (FY17: N62.3bn) and remained relatively flat as at 3Q FY19. However, a notable 49.0% of the FuM relates to a single client.
Risk management functions are provided by FSDH MB’s risk management team, who are considered to have good knowledge and experience of the subject matter.
A significant improvement in market share, portfolio diversification and profitability could lead to a positive rating action. Also, the manager’s ability to sustain funds’ performance at acceptable level could impact the rating positively. However, a negative rating action may arise from loss of market share/key clients, and significant deterioration in financial performance metrics.
NATIONAL SCALE RATINGS HISTORY
Initial rating (October 2012)
Management quality rating: BBB(NG)(mq)
Last rating (December 2018)
Management quality rating: A- (NG)(mq)
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for rating Banks and Other Financial Institutions, updated March 2017
Glossary of Terms/Ratios, February 2016
FSDH AM rating reports (2012-18)
RATING LIMITATIONS AND DISCLAIMERS
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; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The ratings were solicited by, or on behalf of, FSDH Asset Management Limited, and therefore, GCR has been compensated for the provision of the ratings.
FSDH Asset Management Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings above were disclosed to FSDH Asset Management Limited with no contestation of/changes to the ratings.
The information received from FSDH Asset Management Limited and other reliable third parties to accord the rating included the 31 December 2018 audited annual financial statements, and year-to-date management accounts up to 30 August 2019. In addition, other information specific to the rated entity and/or industry was also received.