Lagos, 02 March 2021 – GCR Ratings (“GCR”) has assigned FCMB Asset Management Limited national scale long and short-term issuer ratings of BBB+(NG) and A2(NG) respectively, with a Stable Outlook.
| Rated Entity / Issue | Rating class | Rating scale | Rating | Outlook / Watch |
| FCMB Asset Management Limited | Long Term issuer | National | BBB+(NG) | Stable Outlook |
| Short Term issuer | National | A2(NG) |
Rating Rationale
The ratings assigned to FCMB Asset Management Limited (“FCMB AM” or “asset manager”) are underpinned by its moderately strong competitive position, ungeared balance sheet and complemented by sound cash generative capacity, which has over time bolstered cash flow and liquidity position. Cognisance 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 competitive position and products distribution. However, the ratings are capped at that of the core operating subsidiary of the group (the commercial banking group), which has consistently constituted a significant portion of the group’s total assets and net income.
FCMB AM, a member of the Group, 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 N113.7bn and an estimated market share of 5.2% as at 3Q FY20. Over the review period, FCMB AM’s AUM has grown steadily from N21.6bn at FY16 to N113.7bn at 3Q FY20 on the back of the launch of new products, as well as leveraging its membership of FCMB Group for product cross selling opportunities. The asset manager’s competitive position is further supported by the Group’s widespread distribution network, which enables provision of suite of products and services to an expanded client base and ultimately plays an important role in client retention. As at 3Q FY20, FCMB AM offers various investment products and services, which are fairly spread across an extensive client base (over 7,000 clients, comprising retail, corporate and institutional investors), thus, evidencing some level of product diversification. Investor concentration is also considered low, with the twenty largest retail investors constituting less than 20% of total AUM. However, geographic diversification is viewed to be limited as most revenue is derived from the local market. In the near term, management has indicated plans to launch more customer centric products to further serve the varied investment needs of its clients. Management & Governance is a neutral ratings factor.
Earnings is viewed as moderate but evidenced an upward trajectory over the review period on the back of the steady rise in AUM over the last three years. Typical of an asset management company, investment management fees remained the major components of the revenue base, which accounted for a sizeable 96% of total revenue as at 30 September 2020. The remainder of the revenue stream is derived from investment income and foreign exchange gains. Relative to historical trends, the decline in investment income in FY20 mirrors the prevailing low interest rate environment, which continues to constrain investment yields. In GCR’s opinion, investment income is expected to remain low over the short term, pending the uptick in the subdued interest rates. Positively, the asset manager’s earnings performance is considered strong, with EBITDA margins consistently maintained above 50%. This partly reflects the cost curtailment measures adopted by the asset manager, particularly in the context of shared services within the group. Consequently, cost to income ratio stood at a relatively low 33.6% at 3Q FY20 (FY19: 45.7%), which compares favourably with industry’s average at over 50%. We expect the company to sustain sound earnings performance over the next 12-18 months, on account of strong growth prospects of AUM in line with its strategy.
Leverage and cash flow assessment is considered a positive rating factor for FCMB AM, given the absence of debt on its balance sheet and in line with the industry norms. This trend is expected to be sustained going forward given the nature of operations of asset managers, as well as the conservative management of capital level.
Liquidity is assessed at an intermediate level, with FCMB AM’s liquidity sources consistently covering the anticipated uses by more than 1.5x over the review period, largely supported by good cash flow generation, strong balance sheet liquidity and limited liability risk. This good liquidity position is expected to be sustained 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.
Outlook Statement
The Stable Outlook indicates GCR’s expectations that FCMB AM will continue to maintain a conservative balance sheet, which will underpin liquidity, and cash flow and leverage strength over the outlook horizon. We believe the low interest environment, limited viable alternative investment options, as well as the launch of more customer centric products would continue to provide the necessary growth impetus for AUM over the next 12-18 months. Thus, stimulating cash generative capacity, liquidity and earnings. Furthermore, we believe the asset manager will remain resilient to withstand any macroeconomic challenges arising from the COVID-19 pandemic. The ratings were capped by that of the commercial banking group’s given the core operations of the later and the immateriality of FCMB AM’s contributions (in terms of asset and net income) to the Group.
Rating Triggers
An upgrade could arise from a significant improvement in competitive position and AUM, sustenance of balance sheet strength, and earnings stability as well as the positive movement in the commercial banking group ratings. Conversely, a material reduction in AUM, cash generative capacity and/or weaker than expected earnings could result in negative rating action. Also, GCR would factor in any adverse rating action on the group’s core operating subsidiary.
Analytical Contacts
| 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, May 2019 |
| 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, February 2021 |
| GCR Financial Institutions Sector Risk Score, February 2021 |
Ratings History
FCMB Asset Management Limited
| Rating class | Review | Rating scale | Rating class | 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 |
| Operating environment | 5.75 |
| Country risk score | 3.75 |
| Sector risk score | 2.00 |
| Business profile | (0.75) |
| Competitive position | (0.75) |
| Management and governance | 0.00 |
| Financial profile | 3.50 |
| Cash flow and Leverage | 2.00 |
| Earnings vs. Risk | 1.50 |
| Liquidity | 0.00 |
| Comparative profile | (1.00) |
| Group support | (1.00) |
| Government support | 0.00 |
| Peer analysis | 0.00 |
| Total Score | 7.50 |
Glossary
| 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 were 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 2019
- Three years of comparative audited numbers
- Unaudited financial results as at 30 September 2020
- Other related documents.
