Freedom Holding Corp (FRHC)

[Quintessence]

S&P Global Ratings has revised outlook on ratings of Freedom Finance in Kazakhstan and Russia from "stable" to "positive". At the same time, the long-term and short-term ratings of both companies were affirmed at 'B- / B'.

Also the rating of "Freedom Finance" on the national scale was revised to "kzBB-" to "kzBB".

According to the information, the revision of the forecast is mainly due to a significant improvement in the ability of Freedom Holding Corp. generate profits in 2020 by increasing business volume.

“Stronger retail interest income indicators in financial markets, in particular in Russia, as well as closer interaction with its sister company FFIN Brokerage Services Ltd. (FFIN) resulted in a significant increase in fee and commission income. As a result, in the first half of the current fiscal year ending March 31 In 2021, the group's return on equity exceeded 60% As a result, the profit from the group's core activities could amount to more than 200 percentage points of the volume of risk-weighted assets (taking into account the average over three years) to the level that we estimate as "strong" - the message says.

The S&P noted that, according to forecasts, the group's capitalization will be maintained at an adequate level in the medium term. This is despite a significant asset acquisition plan, which (among others) includes the purchase of Kassa Nova Bank, as well as sister insurance companies - IC Freedom Finance Insurance and LIC Freedom Finance Life.

"We expect that these transactions will collectively lead to a slight decrease in the risk-adjusted capital (RAC) ratio of the group to 7.25-7.75% (compared to 8.7% as of September 30, 2020). In line with our assumptions, we do not expect the group to increase its own position in shares, and do not forecast that the acquisitions of assets will have significant pressure on the liquidity of the group, as in some cases prepayments have already been made. " - explained in the agency.

Analysts also noted that the positive outlook for Freedom Finance reflects the expectation that the group will gradually increase its fee and commission income, taking advantage of the growing interest of retail investors in the Russian and Kazakh securities markets and maintaining strong capitalization despite M&A deals.

“We can take a positive rating action if we recognize the group's strong ability to generate profit from the expansion of its retail customer base. In addition, we can upgrade our ratings if, despite the group's active participation in M&A transactions, its capitalization indicators improve to the level at which our calculated RAC coefficient will consistently exceed 10%. Any positive rating action will depend on the successful completion of acquisitions and significant progress in the inclusion of the existing customer base in the perimeter of Freedom Holding Corp ", - summarized in S&P.


Source: https://lsm.kz/fridom-finans-rejtingi-snp