Lagos Nigeria, 29 January 2019–Global Credit Ratings has upgraded the management quality rating assigned to FSDH Asset Management Limited to A-(NG) from BBB+(NG); with the outlook accorded as Stable. The ratings are valid until August 2019.
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 has a track record of over a decade and half, managing a wide array of asset classes (including equities, fixed income securities and real estate investment trust “REIT”) for both corporate and individual clients in Nigeria. Also, the manager leverages technical support and good market perception underpinned by its status as a subsidiary of FSDH Merchant Bank Nigeria Limited (“FSDH” or “the parent”). The manager operates a lean business which comprise only core operation (that is, investment management and administration), business development and operational support unit. All other functions are provided through the parent, as contained in a service level agreement. Overall, FSDH AM has benefitted from a fairly stable management team with an average of 8 years with the manager. Although, changes at the board level are affected by changes on the parent’s board, as they represent majority on FSDH AM’s board.
Capitalisation is considered strong at N1.2bn at FY17, measuring well above the required minimum of N150m for asset managers. The manager has displayed strong internal capital generating capacity over the review period. Net profitability remained strong, although registering a marginal 2.6% growth from the prior year. While total operating income grew 5.5% to N605.4m in FY17, a significant 37.7% rise in operating expenses saw cost to income ratio to 37.9% (FY16: 29%) and the pre-tax profit closed at N376m during the period (FY16: N407.5m). Major driver of the manager’s revenue stream during the period was a good 11.6% increase in fee income and a marginal 1.1% on other operating income. Operating expenses on the other hand, was largely driven by staff related cost. Consequently, ROE stood at 28.0% in FY17 from 29.1% in FY16. Performance as at 3Q FY18 reflects ROE at 21.2%.
FSDH AM actively manages its portfolio on an ongoing basis, with portfolio re-balancing performed every month or as/and when required. Investment decision are vested in an investment committee, comprising 10 members (five from FSDH AM and the remaining from the parent, a sister stock broking company FSDH Securities Limited (“FSL”) and an independent member). Total funds under management (“FuM”) stood at N62.3bn at FY17 (FY16: N58.0bn) and increased to N65.4bn at 3Q FY18.
Risk management structure is considered sound, as it is provided by FSDH’s risk management team which have good knowledge and experience of the subject matter. Cognisance, is taken of the fact that a sizeable 49.1% of the FuM at FY17 was from the single largest client.
The accorded rating would be sensitive to improvement in FSDH AM’s market share, portfolio diversification and profitability, in addition to establishing and sustaining an acceptable fund performance track record. 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 (November 2017)
Management quality rating: BBB+ (NG)(mq)
+234 1 904 9462-3
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 (2012-17)
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 credit ratings included the latest audited annual financial statements as at 31 December 2017 (plus four years of comparative numbers), latest internal and/or external report to management, full year 2018 detailed budgeted financial statements, year-to-date audited accounts to 30 September 2018, reserving methodologies and capital management policies. In addition, information specific to the rated entity and/or industry was also received.