PACRA maintains Broker Management Rating of Spectrum Securities Limited

Spectrum Securities Limited ('SSL' or the 'Company') primarily provides equity brokerage services, while diversification is present through RBFS, MFS, and MFS. FY23 experienced low market volumes and limited investor interest, impacting the brokerage industry's revenue; however, since the start of FY24, the market volumes have picked up and investor interest has managed to push the index to historic highs. Market volumes growth trend appears to be ongoing, resulting in positive market indicators for FY24. The rating incorporates the business acumen of the primary sponsor, Mr. Muhammad Owais, Mr. Owais injected PKR 210mln into the Company during 1QFY24, providing much needed cashflow to SSL in order to capitalize on the market upturn. The governance framework is considered adequate. Enhancement of board size and inclusion of independent oversight to board committees would enhance the governance framework. The Company has an experienced and qualified management team, whereas separation of key management roles would improve the organizational structure. Separation of audit and compliance functions ensure an adequate control environment. A dedicated head of compliance would further enhance oversight. The Company has established rigorous protocols regarding risk assessment by implementing KYC, CDD, AML, CFT, and whistleblowing Policies. During FY23, the equity brokerage revenue stood at ~PKR 42mln depicting a decline of ~38% (SPLY: ~PKR 68mln). FY23 was a subdued year for SSL, incurring a loss of ~PKR 32mln during the period. Whereas, in 1QFY24 the equity brokerage revenue was reported at ~PKR 18mln, (SPLY: ~PKR10mln). However, the Company managed to outperform the market during 1QFY24 by growing its topline by ~69% as compared with market volumes growth of ~31%, resulting in improved market share of the Company. As a result, SSL reported a profit after tax of ~PKR 3mln during 1QFY24. Moreover, the recent equity inclusion along with a zero-leveraged capital structure provide comfort to the ratings. The equity base of SSL stood at ~PKR 340mln at end-Sep'23.
Moving forward, it is imperative from a ratings perspective to maintain topline growth, revenue diversification, and profitability. Moreover, retention of key management personnel and further separation of management roles remain critical.

About the Entity
Spectrum Securities Limited ("SSL" or the "Company") was incorporated under the Companies Ordinance 1984 after the acquisition of TREC from M/S Mazhar Hussain Securities (Pvt.) Limited in the year 2000. SSL is a Corporate Member of the Pakistan Stock Exchange and registered with SECP. The Company's Board of directors comprises of three individuals including the CEO - Mr. Ahmed Nabeel. The CEO, Mr. Ahmed Nabeel has an extensive and diversified experience in the field of capital market spanning over twenty five years. Mr. Muhammad Harris serves the board as an independent director while Mr. Muhammad Umair Arif serves as an executive director.