AIICO Capital Gets Investment Grade Rating as AUM Grows Steady
GCR Ratings has assigned AIICO Capital Limited national scale long-term and short-term issuer ratings of A-(NG) and A2 (NG) respectively; with a stable outlook as Asset Under Management (AUM) grows steady.
According to a recent rating note, the emerging market-focused rating firm said the national scale issuer ratings assigned to AIICO Capital Limited reflect its moderately strong competitive position earnings stability, as well as the displayed strong liquidity metrics over the review period.
The stable outlook indicates GCR’s expectations that AIICO Capital will continue to maintain a conservative balance sheet, with minimal risk exposure, which should support liquidity over the next 12-18 months, the report hinted.
“We expect an increase in AUM as the manager continues to leverage on the well-entrenched AIICO brand and vast distribution network to attract more funds under its portfolio”.
GCR Ratings said cognisance is also taken of the managers’ membership within a diversified financial services group (AIICO Insurance Plc, which continues to support the manager’s competitive position and products distribution.
AIICO Capital ranks among the top tier players within the Nigerian asset management space, with a total Asset under Management (AUM) of N224.4 billion, translating to an estimated market share of 8% as of the financial year 2020, according to GCR.
It stated that over the review period, the manager has grown its AUM steadily from N78.1 billion in the financial year 2017 to N224.4 billion in 2020 on the back of new products launch, as well as leveraging its membership of AIICO for product cross-selling opportunities.
However, GCR analysts note the concentration of the AUM, about 80% which has been generated from the parent company.
“While management and governance is a neutral rating factor, we note the frequent change of the management team, which remains a concern for GCR, particularly given the nature of the asset management business, which relies on the expertise and stability of management team to attract clients”, it said.
The rating note considers the company’s earnings to be moderately strong and have remained largely stable over the review period. AIICO’s earnings are mainly driven by asset management income and interest income, albeit the highly volatile foreign exchange gains significantly supported earnings in the financial year 2020, it added.
GCR said the company’s net income has displayed a consistent upward trajectory over the review period, with earnings before interest tax, depreciation and amortisation (EBITDA) margin at a peak of 75.9% in 2020, and favourably compared to peers’ average of about 65%.
Furthermore, it is also noted that AIICO’s cost to income ratio remained contained over the review period, registering at a moderate 24.1% in 2020, compared to peers’ average of about 33%.
“Leverage and cash flow assessment is considered a positive rating factor for AIICO Capital due to its net ungeared position, which is in line with the industry norms.
“AUM held on the balance sheet are mainly invested in money market instruments. We expect this trend to be sustained going forward, given the nature of its operations”, the rating report stated.
It however viewed AIICO’s liquidity to be at an intermediate level, having liquidity sources consistently covering the anticipated uses by more than 1x over the review period.
“In 2020, the coverage stood at 1.29x, underpinned by good cash flow generation, moderately liquid balance sheet 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.
“The ratings on the manager are capped at that of AIICO Insurance Plc, reflecting the majority stake and close business ties between the two”, GCR remarked. #AIICO Capital Gets Investment Grade Rating as AUM Grows Steady
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