Feb 15 - Fitch Ratings has assigned Aberdeen Asset Management PLC (AAM) a Long-term Issuer Default Rating (IDR) of 'A-' and Short-term IDR of 'F2.' The Outlook on the Long-term IDR is Stable.
RATING DRIVERS AND SENSITIVITIES - IDRS
AAM's IDRs reflect its profile and track record as a traditional asset manager. They benefit from the high cash generation typical of its industry but are also exposed to the risks common to its peer group, notably the sensitivity of assets under management (AUM), and consequently earnings, to market levels, and operational and reputational risks.
Fitch considers AAM's balance sheet a strength, notably its net cash balance, high interest coverage (EBITDA/interest expense 21x) and low leverage (gross debt/EBITDA 0.1x) are both consistent with a 'A'-range rating under Fitch's criteria. Additionally, while asset managers may have less need of loss-absorbing capital than other financial institution business models, Fitch notes AAM has improved its capital position since the financial crisis and now reports positive tangible capital.
AAM has demonstrated improving profits and profit margins in recent years, partly attributable to the strong performance of three highly successful equities fund groups, which together accounted for half of total AUM as of 30 September 2012. However, compared with larger and more diversified peers, Fitch considers that AAM's earnings may be more vulnerable to 'key employee' or 'key client' defection risks, or to any sustained deterioration in performance of these dominant fund groups.
Fitch considers AAM's management team to be experienced and proven and notes that its interests are aligned with those of the company via significant shareholdings. Acquisitions are a key management skill and have been a substantial driver of the company's growth into its current, global footprint. These acquisitions were successfully integrated and contributed to higher earnings and increased geographic and product diversification, a ratings positive. Nonetheless, the ratings and Outlook incorporate Fitch's expectation that any future deals will take into account the need to preserve balance sheet strength and any sizeable future acquisition would be financed with fresh equity. Given their modest size in comparison with expected group cash flow, Fitch considers the two recently announced "in-fill" acquisitions (Artio Global and SVG Advisers) to be ratings neutral.
The Stable Outlook reflects the consistent business trends reported in recent periods.
The company's IDRs are sensitive to a change in Fitch's assumptions around AUM levels and balance sheet discipline. They could be upgraded if there is a demonstrable increase in diversification away from the three key fund groups and a broadened client base and/or further improvement in the net cash balance. These developments would need to be sizeable to warrant more than a one-notch upgrade. The ratings could be downgraded if there is a substantial increase in leverage, material reputational damage, a sustained deterioration of fund performance or significant AUM net outflows.