Announcements Corporate Rating Alerts

GCR affirms Quince Capital (Proprietary) Limited’s A(ZA)/A1(ZA) issuer ratings based on the group’s strong financial profile; Outlook Stable

Rating Action

Johannesburg, 18 December 2020 – GCR Ratings (“GCR”) has affirmed Quince Capital (Proprietary) Limited’s (“Quince” or “the company”) national scale long- and short-term issuer ratings of A(ZA) and A1(ZA) respectively. Concurrently, GCR downgraded the international scale long term issuer rating of Quince to B+ from BB-. The Outlook on the ratings are Stable.

Rated Entity / Issue Rating class Rating scale Rating Outlook/Watch
Quince Capital (Proprietary) Limited Long Term issuer National A(ZA) Stable Outlook
Short Term issuer National A1(ZA)
Long Term issuer International B+ Stable Outlook

Rating Rationale

The ratings on Quince reflect the company’s strategic importance within Reunert Limited (“Reunert” or “the group”). This view is supported by its 100% ownership and 94% funding contribution by the parent, alongside its key strategic position providing financing to the Nashua franchises and their customer base.

GCR’s view that Quince is considered essential to Reunert is based on its position as the sole source of funding to the Nashua brands. Considering that Quince sources all its customers through the group, GCR believes that there are generally good levels of operational integration. Whilst the company operates under a separate legal name, credit is extended under the ‘Nashua’ brand name. Nevertheless, GCR notes that Quince’s contribution to group revenues is not significant and that its business, while supporting group operations, is not aligned with their main areas of expertise such that its financing may be substituted for external funding. Thus, the rating has not been equalised to the wider group. Nonetheless, the company’s rating remains dependent on the group’s credit strengths.

Reunert’s business profile is supported by three lines of business and geographically diverse sources of revenue due to growing demand for its exports. The group suffered a 25% reduction in revenues at FY20, partly because of disruptions due to COVID-19. Margins were particularly impacted by trading disruptions and foreign exchange losses at their Zambian cabling operations, as well as reported credit losses, resulting in an EBITDA margin of 7.8% (FY19: 14.0%). However, GCR notes the strong recovery evidenced in the group’s FY20 fourth quarter performance as trading restrictions were eased. In addition, the group’s net ungeared balance sheet supports strong credit protection metrics and a robust financial profile which is expected to be maintained for the medium term, barring any unforeseen disruptions.

Although Quince’s performance has been strong over the past few years, with low loan losses and good profitability, GCR is cognisant of the credit write-off that was reported at the company in FY20, because of an external fraud event. Nonetheless, although the ICT division of Reunert, which Quince forms a part of, contributes c.30% towards group revenue, it continues to generate the strongest margin out of the three segments.

Outlook Statement

The Stable Outlook reflects the expectation that Reunert’s conservative financial profile and relatively strong competitive position underpin the strong basis for support, despite the disruptions caused by the COVID-19 pandemic.

Rating Triggers

There is limited likelihood of any upward movement in the rating in the coming 12-18 moments. GCR may potentially downgrade the rating if 1) Reunert’s earnings do not recover in line with GCR’s expectations of an EBITDA margin in excess of 10%, 2) Reunert’s leverage metrics deteriorate substantially, 3) GCR perceives a reduction in the anticipated group support offered to Quince.

Analytical Contacts

Primary analyst Tinashe Mujuru Credit Analyst
Johannesburg, ZA TinasheM@GCRratings.com +27 11 784 1771
Secondary analyst Vinay Nagar Senior Financial Institutions Analyst
Johannesburg, ZA Vinay@GCRratings.com +27 11 784 1771
Committee chair Eyal Shevel Sector Head: Corporate Ratings
Johannesburg, ZA Shevel@GCRratings.com +27 11 784 1771

Related Criteria and Research

Criteria for the GCR Ratings Framework, May 2019
Criteria for Rating Corporate Entities, May 2019
GCR Ratings Scales, Symbols & Definitions, May 2019
GCR Country Risk Scores, November 2020
GCR Corporate Sector Risk Scores, July 2020

Ratings History

Quince Capital (Proprietary) Limited

Rating class Review Rating scale Rating Outlook/Watch Date
Long Term Issuer Initial National A+(ZA) Stable August 2013
Short Term Issuer Initial National A1(ZA) August 2013
Long Term Issuer Initial International BBB- Stable August 2013
Long Term Issuer Last National A(ZA) Stable November 2019
Short Term Issuer Last National A1(ZA) November 2019
Long Term Issuer Last International BB- Stable November 2019

Glossary

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.
Country Risk The range of risks emerging from the political, legal, economic and social conditions of a country that have adverse consequences affecting investors and creditors with exposure to the country, and may also include negative effects on financial institutions and borrowers in the country.
Downgrade The rating has been lowered on its specific scale.
Issuer Ratings See GCR Rating Scales, Symbols and Definitions.
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.
Loan A sum of money borrowed by a debtor that is expected to be paid back with interest to the creditor. A debt instrument where immovable property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to repay the loan. Registration is a prerequisite for the existence of any mortgage loan. A mortgage can be registered over either a corporeal or incorporeal property, even if it does not belong to the mortgagee. Also called a Mortgage bond.
Loss 1. A tangible or intangible, financial or non-financial loss of economic value. 2. The happening of the event for which insurance pays (insurance).
Recovery The action or process of regaining possession or control of something lost. To recoup losses.
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 Current; ordinarily less than one year.

SALIENT POINTS OF ACCORDED RATINGS

GCR affirms that a.) no part of the ratings 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 ratings have been disclosed to Quince Capital (Proprietary) Limited. The ratings above were solicited by, or on behalf of, the rated entity, and therefore, GCR has been compensated for the provision of the ratings.

Quince Capital (Proprietary) 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 information received from Quince Capital (Proprietary) Limited and other reliable third parties to accord the credit ratings included:

  • The group audited financial statements for 2020 (plus four years of comparative numbers)
  • The group results presentations
  • The integrated report for the group at 2019.
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