GCR assigns Continental Transfert Technique Limited a first time Issuer rating of BBB+(NG); Outlook Stable

15 Aug 2017 In Rating Notifications

GCR assigns Continental Transfert Technique Limited a first time Issuer rating of BBB+(NG); Outlook Stable

Lagos, 14 August 2017—Global Credit Ratings has assigned long term and short term national scale Issuer ratings to Continental Transfert Technique Limited of BBB+(NG) and A2(NG) respectively, with a Stable outlook accorded. The ratings are valid until July 2018.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to Continental Transfert Technique Limited (“CTTL” or the “Company”) based on the following key criteria:

CTTL specialises in secure systems integration, leveraging expertise in biometric technology. It is part of a larger combination of companies with a long operational track record in a number of developing countries, and a broad offering or product and services, including energy, hospitality, agriculture/commodity trading, information technology, and car manufacturing (among others). While its earnings diversification initiatives are noted, CTTL’s credit risk profile is underpinned by its Combined Expatriate Residence Permit and Alien Card (“CERPAC”) cash flows and contractual relationship with the Federal Government of Nigeria (“FGN”).

A revision of the CERPAC revenue sharing agreement and repricing considerably bolstered CTTL’s performance in recent years, supporting a top line CAGR of 70% over the review period to N11.7bn in FY16. As such, the EBIT margin has ranged above 50% since FY15, versus a mean of c.20% achieved over the previous three years. However, a sharp elevation in project overheads is expected to see CTTL report a small operating income, while normalisation of the revenue sharing ratio reset the operating margin to c.30% in the medium term. Accordingly, GCR notes the strong baseline demand inherent in Federal Ministry of Interior contracts. In this regard, the key risk with respect to future performance is deemed to be contractual, with CTTL’s achievement of key deliverables required to ensure margin resilience. Nevertheless, collections from the project are escrowed, while the distribution of proceeds is carried out by the collection agent, this partially mitigates the contractual/business risk inherent in the project.

Improved profitability has allowed for a reduction in debt to N3.7bn (FY15: N4.3bn), and brought net gearing and net debt to EBITDA down to lows of 36% and 39% in FY16 (FY15: 175%; 109%), well off FY13-14 highs. However, a N25bn secured bond issue is planned, which will drive marked distortion in gearing and debt serviceability in FY17 (against the backdrop of projected net loss of a N2.4bn). Thereafter, amortisation of the note and strong earnings are budgeted to support a net ungeared position and net interest cover of at least 3x by FY20.

While underlying cash flows have picked up strongly, on the back of a predictable income stream, sizeable directors’ loans have amplified working capital pressure and unduly curtailed free cash flows. The loans are set to be settled from dividends accruing to the directors in the short term, but are noted with concern as they emphasise shortcomings in CTTL’s corporate governance structures.

Notwithstanding the latent demand, current macroeconomic challenges have reduced expatriate and tourist volumes somewhat. Looking ahead, continued economic recovery and improvement in both consumer and business confidence are expected to support a rebound in volumes. Together with the planned investment capacity enhancement, this is supportive of sound medium term credit protection factors.

Positive rating action is contingent an improvement in corporate governance structures, as well as increased diversification of revenue streams, accompanied by sustained growth in profitability and credit protection metrics. Conversely, earnings underperformance resulting from contractual shortcomings or other operational lapses, leading to a deterioration in gearing and other credit protection metrics could lead to a rating downgrade.

 

NATIONAL SCALE RATINGS HISTORY

Rating Class
Rating
Outlook
Date
       
Initial Rating/Last rating      
Long term BBB+(NG) Stable July 2017
Short term A2(NG) Stable July 2017
       
       

ANALYTICAL CONTACTS

Primary Analyst

Kunle Ogundijo

Analyst

Lagos

+23 41 462 2545

.(JavaScript must be enabled to view this email address)

Committee Chairperson

Dave King

Chairman

.(JavaScript must be enabled to view this email address)

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Criteria for Rating Corporate Entities, updated February 2017

Glossary of Terms/Ratios (February 2017)

 

 

 

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

 

 

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity; d) the ratings expire in July 2018.

CTTL participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to CTTL with no contestation of the ratings.

The information received from CTTL to accord the credit rating included;

  • 2016 audited annual financial statements (plus four years of comparative numbers);
  • management accounts for the three months ending 31 March 2017;
  • comprehensive budgets for the 2017-21 financial years; and
  • a breakdown of facilities available and related counterparties as at year end FY16.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here