Announcements Financial Institutions Rating Alerts

GCR Assigns Long and Short-term National Scale Issuer Ratings of A(NG)/A1(NG) Respectively to STL Trustees Limited; Outlook Stable.

Lagos, 30 September 2021 – GCR Ratings (“GCR”) has assigned STL Trustees Limited national scale long and short-term issuer ratings of A(NG) and A1(NG) respectively; with a Stable Outlook.

Rated Entity / Issue Rating class Rating scale Rating Outlook / Watch
STL Trustees Limited Long Term issuer National A(NG) Stable
Short Term issuer National A1(NG)

GCR has withdrawn the *(mq) rating as a business decision, without review.  MQ ratings are not credit ratings, therefore they do not measure the relative ability of an entity to meet its financial obligations.  Conversely. GCR’s issuer credit ratings are forward-looking opinions on the relative creditworthiness of a specific financial obligation, or a class of financial obligations issued by an entity.

Rating Rationale

The national scale issuer ratings assigned to STL Trustees Limited (“STL” or “the company”) reflect its sound financial profile and strong brand franchise within the trusteeship space in the local market.

STL is a licensed Trustee and Fund/Portfolio manager in Nigeria, with operations spanning over two decades. The company is a mid-tier player within the Nigerian portfolio management space, albeit with a strong brand franchise in Trusteeship. Fund Under Management (“FUM”) of N43.2bn was reported as at end-August 2021, which includes sinking fund management, corporate and individual managed funds, endowment funds, and some retail products. STL’s competitive position is supported by its stable and experienced management team, whose combined experiences in the industry averages about 25 years.

Earnings is considered strong and largely stable over the review period. The company’s earnings are predominantly driven by asset management income, comprising commission received on managed funds. Although the decline in the size of FUM has concomitantly seen a decline in its corresponding income line and consequently net income over the last three –years. Nevertheless, the EBITDA margin (averaging 84.3% over the review period) is considered strong. In addition, cost to income ratio remained well contained over the review period, registering at a moderate 17.9% in FY20.

Leverage and cash flow assessment is considered a positive rating factor for STL due to its net ungeared position, which is in line with the industry norms. We expect this trend to be sustained going forward, given the nature of its operations as a trustee and portfolio manager, as well as the conservative management of capital level.

The company’s liquidity is considered sound, having liquidity sources consistently covering the anticipated uses by more than 1x over the review period. At FY20, the coverage stood at 10.3x, underpinned by good cashflow generation, highly liquid balance sheet and limited liability risk. This strong liquidity position is expected to be sustained over the next 12-18 months.

Outlook Statement

The Stable Outlook indicates GCR’s expectations that STL will continue to maintain a conservative balance sheet, with a minimal risk exposure, which should continue to support strong liquidity metrics over the next 12-18 months. We expect an increase in FUM as the company leverage the vast knowledge of its management team to attract more funds under its portfolio.

Rating Triggers

Upward movement in the ratings is considered unlikely over the medium term but could come around with a significant and sustained improvement in asset attraction and retention capacity, while maintaining a sound financial profile. Conversely, a downward movement in the rating could result from a material reduction in FUM, cash liquidity position and weakened financial profile.

Analytical Contacts

Primary analyst Adeyinka Olowofela Senior Analyst, Financial Institutions Analyst
Lagos, NG yinka@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

STL Trustees Limited

Rating class Review Rating scale Rating class Outlook Date
Long Term issuer Initial/last National A(NG) Stable September 2021
Short Term issuer National A1(NG)

Risk Score Summary

Rating Components & Factors Risk scores
Operating environment 5.75
Country risk score 3.75
Sector risk score 2.00
Business profile (2.50)
Competitive position (2.50)
Management and governance 0.00
Financial profile 4.50
Cash flow and Leverage 2.00
Earnings vs. Risk 1.50
Liquidity 1.00
Comparative profile 0.00
Group support 0.00
Government support 0.00
Peer analysis 0.00
Total Score 7.75

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 STL Trustees 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.

STL Trustees 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 STL Trustees Limited and other reliable third parties to accord the credit ratings included:

  • Audited financial results as at 31 December 2020
  • Three years of comparative audited numbers
  • Other related documents.

In accordance with best practice, it is hereby disclosed that a shareholder in STL Trustees Limited also has an indirect shareholding in GCR in Nigeria. However, we confirm that that this individual is a passive investor and has no involvement or influence whatsoever in GCR’s ratings process.

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