GCR Affirms Stanbic IBTC Asset Management Ratings

GCR has affirmed Stanbic IBTC Asset Management ratings, with the company’s outlook accorded as stable, the emerging market ratings firm said in a notice on Tuesday.

Over the next 12-18 months, GCR reveals an expectation that Stanbic IBTC Asset Management Limited’s sustained fund under management growth will affirm its leading market position.

Stanbic IBTC Asset Management Limited’s rating affirmation balances the company’s strong domestic brand franchise and competitive position, ungeared balance sheet, good earnings, strong capitalisation metrics and good liquidity profile against operational issues that moderated earnings in the financial year ended 31 December 2022, GCR stated in its rating note.

Stanbic IBTC Asset Management, a non-core operating entity owned by Stanbic IBTC Holdings contributed about 1% to the group’s total assets and less than 5% to profits.

GCR Ratings said Stanbic IBTC Asset Management remains the largest non-pension fund manager in Nigeria with funds under management (FUM) that crossed the N1 trillion mark in March 2023.

This represents an uptick when compared with N951 billion reported in Dec. 2022, translating to a market share of over 40% of publicly quoted collective investment schemes in Nigeria.

As of 31 December 2022, the Asset Management firm had a portfolio of 17 funds comprising 15 collective investment schemes and two alternative funds (including infrastructure funds and REITs), according to GCR.

GCR said in the note that in serving over 101,417 unique mutual fund customers, the Stanbic Asset Manager uses its large distribution network across Nigeria that leverages the Group’s physical outlets and digital touch points.

“We expect the Manager’s leading position to be sustained over the rating horizon”. The company’s earnings are supported by a growing and diversified fund under management, the rating note added.

GCR said the Asset Manager’s stable earnings are largely from management fees which accounted for about 95% of gross revenues in the financial year 2022.

It is noted that over the years, gross revenues have maintained an upward trajectory registering a 3-year cumulative average annual growth rate (CAGR) of 22.3% in 2021.

However, in 2022, gross revenues dipped by 20.2% compared to the prior year largely because by one-off discounts and suspension of management fees on some funds, the rating note indicates.

GCR stated that the firm’s operating costs are rising because of strategic investments in technology, sustained inflationary pressures and the naira devaluation, which impacts foreign currency denominated expenses.

In addition, it noted that Stanbic IBTC Asset Management growth in alternative investments requires specific skill sets; which translates to elevating staff costs.

Nonetheless, its earnings before interest tax depreciation and amortization, EBITDA, margin remained strong at 58.1% in the financial year 2022 versus 70% in 2021.

Although, this still trend below the three-year average (Financial 2020 – Financial 2022) of 65.8%, according to the rating note published by GCR.

Also supporting earnings is Manager’s good credit risk profile, backed by investments in its managed Funds, with average returns that compare well with peers.

“… We recognise operational risks from Manager’s systems and processes which resulted in the decline in gross revenues in financial 2022.

“While efforts have been made to upgrade the core business application, GCR would monitor the impact of the system upgrade going forward.

“We expect profitability metrics to remain above the industry’s average in the medium term (with the EBITDA margin well above 35%), although the growing alternative fund portfolio will put some pressure on costs going forward”.

GCR said its assessment of the asset manager’s cash flow and leverage is considered positive to the rating, buoyed by a strong capital base and an ungeared position as of 31 December 2022.

Stanbic IBTC Asset Management Limited’s shareholders’ funds which printed at N8.7 billion as of 31 December 2022 surpassed the regulatory minimum of N150 million for asset managers in Nigeria, the rating note stated.

GCR expects the capital base to remain solid over the rating horizon.

It noted that Stanbic IBTC Asset Management Limited’s liquidity position is neutral to the rating, reflecting an adequate level of liquid assets held for its operations.

The firm’s cash flows are sufficient and it maintains a portfolio of liquid assets which are largely in its managed funds, GCR posits.

It added that coverage of uses over sources has averaged about 1x in the last three years, with outflows largely driven by dividend payouts.

However, with stronger earnings generation and retention, going forward, GCR projects an improvement in liquidity metrics over the next 12-18 months.

Over the next 12-18 months, GCR reveals an expectation that Stanbic IBTC Asset Management Limited’s sustained fund under management growth will affirm its leading market position.

Earnings should improve from a growing fund under management, according to the rating note; however, its earnings before interest tax depreciation and amortization (EBITDA) margin may be pressured by rising operating costs, although it will remain well above 35%, to support the capital base.

“We expect operational risks to be contained by improvements in the Stanbic IBTC Asset Manager’s systems.

“In addition, stronger liquidity metrics are anticipated, buoyed by relatively lower outflows through dividend payments”, the rating agency said in the note. # GCR Affirms Stanbic IBTC Asset Management Ratings