Lagos, 05 August 2021 – GCR Ratings (“GCR”) has assigned Capital Trust Investment and Asset Management Limited national scale long and short-term issuer ratings of BBB(NG) and A3(NG) respectively; with a Stable Outlook.
|Rated Entity / Issue||Rating class||Rating scale||Rating||Outlook / Watch|
|Capital Trust Investment and Asset Management Limited||Long Term issuer||National||BBB(NG)||Stable|
|Short Term issuer||National||A3(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GCR has withdrawn the *(mq) rating as a business decision, without review.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.
The national scale issuer ratings assigned to Capital Trust Investment and Asset Management Limited (“Capital Trust” or “the manager”) reflect its moderate earnings base, and its competitive edge in Halal fund. However, these strengths are partly offset by the manager’s relatively modest market share.
Capital Trust is a mid-tier player within Nigerian asset management space, with a total Asset Under Management (“AUM”) of N43.2bn and an estimated market share of 1.9% as at FY20. As at 31 December 2020, Capital Trust had under its management three major mutual funds and some non-discretionary funds offered to a diverse client base. The manager’s competitive position is supported by its approach in providing solution-driven funds, combined with its expertise in Halal funds niche segment. In addition, Capital Trust is now more corporate focused and intends to leverage on its well-established relationship with pension fund administrators and Insurance companies to grow its business further. The manager also expects to increase its AUM as it harnesses opportunities arising from Sharia compliant funds.
Earnings is considered fairly strong and has remained largely stable over the review period. Expectedly, the manager’s earnings are mainly driven by asset management income, comprising commission received on managed funds. Net income has displayed a consistent upward trajectory over the review period, with EBITDA margin at a peak of 82.3% at FY20, and favourably compared to peers’ average of about 50%. Furthermore, cost to income ratio remained contained over the review period, registering at a moderate 17.7% in FY20, compared to peers’ average of about 38%. However, these factors are partly offset by the potential risk presented by the concentrated exposure to long-term assets.
Leverage and cash flow assessment is considered adequate and a positive rating factor. Although Capital Trust has some liabilities the entity is in fact in a net ungeared position, with the largest liability exposing the entity to no payment risk. We expect Capital Trust to maintain this relatively debt-free position going forward given the nature of its operations.
Despite this, the manager’s liquidity is negatively viewed, with liquidity sources consistently lagging coverage of the anticipated uses over the review period. At FY20, the coverage stood at 0.53x, following some investments during the year. In addition, some concentration risk is perceived in the investment book, with one investment comprising the bulk (86.2%) of the investment portfolio. We expect a more diversified investment portfolio as AUM increases over the next 12 – 18 months.
The Stable Outlook indicates GCR’s expectations that Capital Trust will continue to maintain a fairly conservative balance sheet, with a minimal risk exposure, which should support strong liquidity metrics over the next 12-18 months. We expect an increase in AUM as the manager it harnesses opportunities arising from Sharia compliant funds.
A significant and sustained improvement in asset attraction and retention capacity, as well as improvement earnings risk and liquidity metrics could lead to a positive rating action. Conversely, a downward movement in the rating could result from a material reduction in AUM, cash generating capacity and weakened financial profile.
|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|
Capital Trust Investment and Asset Management Limited
|Rating class||Review||Rating scale||Rating class||Outlook||Date|
|Long Term issuer||Initial/last||National||BBB(NG)||Stable||July 2021|
|Short Term issuer||National||A3(NG)|
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||1.00|
|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 Capital Trust Investment and 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.
Capital Trust Investment and 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 Capital Trust Investment and Asset Management 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.