Fitch Ratings has upgraded Anima Holding S.p.A.'s Long-Term Issuer Default Rating (IDR) to 'BBB' from 'BBB-'.

The Outlook is Stable. Fitch has also upgraded Anima's senior unsecured long-term rating to 'BBB' from 'BBB-'. A full list of rating actions is below.

Key Rating Drivers

Improving Leverage: The upgrade reflects Anima's sustained improvement in cash flow leverage, with its gross debt/EBITDA ratio, excluding performance fees, decreasing to 2.4x at end-2023 from 2.7x at end-2022. We also considered Anima's commitment to further reduce leverage by repaying its EUR284 million senior unsecured bond on maturity in 2026. Anima's large unrestricted cash balances, commission-based business model that is not dependent on debt funding for cash generation, and prudent risk profile provide sufficient headroom to balance potential volatility.

Leading Italian Investment Manager: Anima is one of the largest Italian investment managers with EUR192 billion in assets under management (AuM) at end-2023. Anima's franchise benefits from long-term preferential distribution agreements with partner banks such as Banco BPM S.p.A. (BBB-/Stable) and Banca Monte dei Paschi di Siena S.p.A. (BB/Stable). High reliance on distribution agreements (83% of Anima's retail AuM at end-2023) means Anima's franchise and business model are sensitive to a potential loss of a distribution partner.

Standalone Profile: Anima's Long-Term IDR is driven by its Standalone Credit Profile and does not incorporate support from Banco BPM, which owns only 22% of Anima's shares. However, Fitch considers Anima important for Banco BPM's strategy and product offering.

Prudent Risk Profile: Anima has demonstrated its commitment to using its sizeable liquid assets (end-2023: EUR537 million) for debt repayments (gross debt: EUR584 million) or relatively small EBITDA-accretive transactions. The company prepaid its EUR82 million bank loan in 2023 and acquired Castello SGR S.p.A. in July 2023 for EUR62 million and Kairos Partners SGR in May 2024. Fitch expects Anima's gross debt/EBITDA ratio to remain below 2.5x, while ample liquid assets further mitigate its leverage profile.

Stagnating Client Inflows: Net new money (NNM) flows in 2023 were negative EUR171 million (excluding low-margin institutional mandates). We expect that the decreasing investable wealth of median Italian households will lead retail NNM flows to decrease over the long term. Anima's retail franchise focuses on the lower end of the affluent domestic market but is partly balanced by institutional mandates and diversification into new segments (high net worth individuals with Kairos) and new products (real estate funds with Castello).

Lean Cost Structure, High Margins: Anima has low operating expenses with a Fitch-calculated cost/income ratio of 29% in 2023 thanks to its reliance on partner banks' distribution channels. Its adjusted EBITDA margin (excluding performance fees) was sound at 25%. Its average recurring fees/AuM margin is lower than domestic peers due to a large EUR83 billion low-margin institutional mandates.

Sound Liquidity: Anima's funding and liquidity profile is supported by a commission-based business model that does not require debt funding for cash generation. Its adjusted EBITDA (excluding performance fees)/interest expense debt coverage ratio was strong at 20x in 2023.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

A gross debt/EBITDA ratio sustainably above 2.5x or notably higher net cash-flow leverage (in particular if arising from outsized non-operational cash outflows such as dividend payments or share buy-backs).

Loss of distribution partners and inability to access alternative retail distribution channels (e.g. other banks, direct channels).

Material and sustained NNM outflows that could affect our assessment of Anima's franchise.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Upside is limited in the short term and would likely require an upgrade of Italy's sovereign rating (BBB/Stable), gross cash-flow leverage ratio sustainably below 1.5x coupled with improved retail NNM inflows and strong profitability.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

SENIOR UNSECURED DEBT RATING

Fitch equalises Anima's senior unsecure bond ratings with its Long-Term IDR as we consider these Anima's reference obligation, as well as due to our expectation of average recoveries.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

The rating of Anima's senior unsecured notes is primarily sensitive to a change in Anima's Long-Term IDR, and is additionally sensitive to changes in Fitch's recovery expectation, for instance the introduction of a more senior debt layer.

ADJUSTMENTS

The sector risk operating environment score has been assigned below the implied score due to the following adjustment reason(s): sovereign rating (negative).

The funding, liquidity & coverage score has been assigned below the implied score due to the following adjustment reason(s): funding flexibility (negative).

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

(C) 2024 Electronic News Publishing, source ENP Newswire