The FINANCIAL — Fitch Ratings-Milan/London-16 May 2011 — Fitch Ratings has published a new sector-specific special report explaining the credit factors it uses to analyse global alcoholic beverages companies.
The starting point for assessing the alcoholic beverages sector is placing the industry risk profile in a natural rating range. Companies in this sector are typically rated in the 'A' rating category and below, which reflects a sector characterised by stability. The industry's robustness is the result of consumer's regularity of consumption of the product, the absence of technology and R&D risks or of heavy and volatile investment cycles and the limited regulatory risks.
The agency's next steps involve an assessment of company-specific factors and mid-point financial measures to narrow down the rating within each rating category. Company-specific factors that influence ratings are geographic diversification and position within core markets of operation, profile of the brands operated and product diversification. Under financial considerations, the report includes mid-points for financial leverage and interest coverage ratios and several measures used by Fitch to assess a company's cash flow profile and operational effectiveness per rating category.
Fitch has placed these building blocks within rating ranges to increase transparency. However, the analysis does not offer a matrix or formula to derive a notch-specific rating for companies in a particular sector. Instead, the report highlights the key rating factors most frequently applied in major corporate sub-sectors, while still recognising the potential for the unique characteristics of a company and sector to affect the ratings. Equally, the weighting between individual and aggregate qualitative and quantitative factors varies over time and where one factor is significantly weaker than others, this weakest element tends to attract a greater weight in the agency's rating analysis.
Fitch has published 19 sector-specific credit factor reports for corporates during 2010 to help investors gain a greater understanding of how the agency applies key sector credit factors to corporate ratings, which are available on Fitch's website. Furthermore, in the new-style Credit Update company reports, Fitch plans to publish the sector-specific credit factor building blocks for individual companies.
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