FCMB Asset Management Outlook Improves, Gets BBB+ Rating
GCR Ratings has affirmed FCMB Asset Management Limited’s national scale long and short-term issuer ratings of BBB+ (NG) and A2 (NG) respectively, with the outlook revised to positive from stable.
In the rating note, GCR said FCMB Asset Management Limited’s ratings reflect its moderately strong competitive position, ungeared balance sheet, and sound cash generative capacity, which has over time bolstered cash flow and liquidity position.
It takes cognizance is of the asset manager’s membership of an established financial services group FCMB Group Plc which has continued to support its competitiveness and products distribution.
However, the rating note states that FCMB Asset Management ratings are capped at that of the Group, given the Group’s elevated credit risk profile.
The asset management firm ranks among the mid-tier players within the Nigerian asset management space, with a total Asset Under Management of N105.8 billion and an estimated market share of about 5% as at 2021, according to the rating note.
GCR said while FCMB Asset Management Limited’s AUM grew steadily between 2016 and 2020, a 6.9% moderation in 2021 reflects the relatively low yields vis-à-vis some investors’ expectations.
It said going forward, FCMB AsseT Management’s imminent plans to launch the alternative assets funds and the implementation of its digital transformation initiatives in the near term is likely to stimulate AUM growth and market position within the short to medium term.
Furthermore, FCMB Asset Management continues to leverage its membership in the Group for product distribution and cross-selling opportunities, GCR Ratings said.
The rating note released by GCR added that for the firm, management & governance is a neutral rating factor, as it is in line with international best practices. READ: FSDH SPV Bonds Rating Upgraded to BBB, Outlook Stable
FCMB Asset Management firm earnings evidenced an upward trajectory over the last five years, with gross revenue registering a cumulative average growth rate (CAGR) of 35.4% on the back of the strong growth in AUM and operational scale within the review period.
Typical of an asset management company, the relatively stable management fees, and commission remained the major components of the revenue base, accounting for a sizeable 92.4% of gross revenue at 2021, according to GCR.
The rating note hints that growth in this revenue stream is likely to be sustained over the rating horizon due to the strong growth prospects in AUM in line with the asset manager’s outlined strategy.
Further supporting profitability is the lean cost structure the asset manager historically exhibited, which benefits from the shared services within the Group.
GCR analysts said in the ratings that the cost to income ratio remains competitive at 37.4% at 2021 compared with 36.8% in 2020.
Overall, GCR Ratings considered FCMB Asset Management’s profitability metrics to be healthy, with earnings before interest tax depreciation and amortisation (EBITDA) margin registered at 62.6% in 2021, down from 63.2% in 2020 and averaging 57.4% over a five-year period, comparing favourably with peers.
The rating firm said leverage and cash flow assessment is considered a positive rating factor, given the absence of debt on the asset manager’s balance sheet.
“We expect this trend to be sustained going forward due to the asset manager’s nature of operations and the good cash flow management”.
It also said the asset management firm’s liquidity position is viewed to be robust, underpinned by good cash flow generation, strong balance sheet liquidity, and limited liability risk.
As a result, liquidity sources consistently covered the anticipated uses by more than 2x over the review period and stood at 2.4x at 2021 from 2x in the comparable period.
“We expect liquidity metrics to be maintained within a similar sound range over the next 12-18 months on the back of the sizeable quantum of liquid assets. There is also no refinancing or covenant risk, given the ungeared balance sheet”.
Outlook Statement
The outlook also reflects GCR’s expectations that FCMB Asset Management will sustain its conservative cash flow management, which will continue to underpin liquidity, and the ungeared position over the rating horizon, according to the rating note.
Furthermore, GCR analysts believe the successful launch of the anticipated alternative asset funds and other customer-centric products within the next 12-18 months will provide the necessary growth impetus for AUM over the short to medium term, thereby stimulating cash generative capacity, liquidity, and earnings.
#FCMB Asset Management Outlook Improves, Gets BBB+ Rating
