GCR Assigns BBB, A3(NG) to Pagatech Limited With Stable Outlook
GCR Ratings has assigned to Pagatech Limited a national-scale long and short-term issuer ratings of BBB (NG) and A3 (NG), respectively, with a stable outlook.
According to GCR, Pagatech’s ratings derive from the consolidated strengths and weaknesses of Paga Group Limited—a UK-headquartered fintech group with subsidiaries in Nigeria, Ethiopia, and recently, the USA.
“Pagatech is the group’s flagship business as well as primary earnings generator currently; as such, the ratings assigned reflect the group’s creditworthiness in the absence of any tangible credit insulation”, ratings analysts said in a report on the issuer.
GCR said the ratings reflect the group’s evolution from a consumer-focused fintech in Nigeria to one which provides infrastructure and other solutions to enterprises globally, as well as a strong financial profile with good funding flexibility.
The group’s geographic and business diversification supports the overall business profile, however, operating scale relative to similar local or global players is modest, ratings analysts added.
GCR explained that the rapid growth in total assets- which printed at USD89.2 million as of 31 December 2024 – achieved over the last five years has yet to translate to strong earnings or profitability, although the volatility in the Nigerian operating environment during this period is partly to blame.
Ratings analysts expressed that the group’s main competitive advantages lie in its operational flexibilities relative to local players, strong product distribution network, a good brand and an established track record.
“Paga is managed by a well-experienced management team, with generally good corporate governance indicators particularly in terms of strategic implementation, risk management and compliance.
“However, board independence is somewhat limited as there is currently only one independent director on Pagatech’s board. We note that process for recruiting two more independent directors is ongoing and is expected to be concluded over the outlook period (12 to 18 months)”,GCR said in the rating note.
The group’s earnings are credit positive, according to ratings analysts, supported by stable and strong margins which are expected to be maintained.
The ratings note stated that earnings are mainly fees and commissions on transactions such as bill payments, airtime purchases, payment collections et cetera on behalf of customers.
“Between fiscal years 2020 and 2024, operating revenue grew from USD2.1 million to USD9.1 million, reflecting strong throughput over the period.
“However, EBITDA remained constrained by high operating costs and a depreciating Naira which is the main earnings currency.
“Still, the historical trend has been positive as EBITDA became positive in fiscal 2023 and grew by 59.5% to USD2.6 million in fiscal 2024 with a margin of 38.8%.
“With the relative exchange rate (Naira) stability and expected higher throughput from new platforms. We expect the EBITDA growth to be sustained over the outlook period with margins around 35%”, GCR stated.
The ratings note stated that Paga maintains a low-geared balance sheet as debt historically accounted for 20% to 30% of total assets.
The group’s existing debt is long-term USD based with flexible repayment terms; however, ratings analysts said they expect the debt profile to transition as local current funding will be sought over the next 12 – 18 months.
GCR said despite these positives, the net-debt to EBITDA ratio increased to over 3x in 2023 and 2024 from 1x in 2022 due to additional foreign currency borrowing in 2023 and the impact of Naira depreciation on translated Naira earnings.
However, funds from operations (FFO) have increased in line with EBITDA while interest cover is higher at 4x in 2024 from 1x and below in 2023 and earlier due to lower interest payments, according to ratings note from GCR. .
“We expect credit protection metrics to marginally improve over the outlook period”. For Pagatech, GCR said Liquidity is positive to the ratings because the group keeps good levels of cash and cash equivalents, and debt repayments are flexible.
The group also generates adequate cash from operations and enjoys access to a wide range of local and international financiers, ratings analysts stated, adding that liquidity coverage – measured as the ratio of sources to uses – is strong at over 2x historically and estimated at around 1.5x over a forward 12-month period to December 2026.
“The outlook is Stable because the current ratings adequately account for expected changes over the outlook period. Barring any surprises, EBITDA growth with a more stable Naira exchange rate is expected to yield better leverage, cash flow and liquidity metrics, while the addition of independent board members will have a neutral (best) impact on the ratings”, GCR stated.
