Wednesday, January 19

Investec is confident of continued recovery

A couple of weeks ago, Investec “warned” shareholders that its interim results for the six months through September 2021 would be significantly better than the troubled first half of the previous financial year.

Despite the advance notice, the 31% increase in revenue and the 135% increase in earnings per share still looked pretty good when management shared the actual results.

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Fani Titi, Group CEO, correctly described the results as a remarkable achievement, considering that both Investec plc in the UK and Investec Ltd in SA operated under difficult circumstances.

UK banking and wealth management operations were still plagued by prolonged lockdowns, while South Africa’s economy continues to struggle.

However, the two independent business entities performed well.

Titi said in a presentation to shareholders that banking operations and the asset management business in each of the two main geographical areas recovered strongly compared to a year ago.

Profitable period

The notes to the income statement show that operating profit in the investment and equity division SA increased by more than 30% to £ 15.6 million. The wealth and investment pool in the UK and other international companies increased by 13% to £ 42.2 million.

Profitability increased due to a healthy increase in assets under management, good market conditions and continued focus on cost control.

Investec plc’s operating profit from banking operations recovered from a low of £ 12.9 million in the six months to September 2020 to almost £ 85 million in the six months under review, an improvement of 555%.

At SA, Investec Ltd posted an 87% increase in bank profits, from £ 93 million to £ 173 million.

You can see that everything seems to have gone well in the banking business. Activity levels were higher, bad debts and loan loss provisions were lower, and costs decreased.

In South Africa, expected credit loss charges decreased to just £ 4 million (a provision of around 4%), compared to £ 24 million (35%) in the first half of the previous financial year. In the UK, impairments were down 88% compared to a year ago, as bad debt was lower than previously expected.

The cost-to-income ratio in the banking divisions improved significantly at Investec plc and Investec Ltd.


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“We are confident the momentum will continue,” says Titi, demonstrating her confidence by telling shareholders and analysts that management has improved its guidance regarding earnings forecasts for the full financial year through March 2022.

Management expects the companies to have earnings per share of between 48 and 53 pence, compared to 28.9 pence in the financial year through March 2021. For Investec Ltd, the forecast translates into a price ratio. / Forward earnings of around 7.3 times, based on the current exchange rate of R21.16 to the British pound and the latest share price of R76.60.

Shareholders can also expect a good dividend this year.

“I am pleased to share that the board has proposed an interim dividend of 11 pence relative to 5.5 pence in the first half of 2021,” Titi said.

Ninety-one distribution

“In addition, in line with our strategy to optimize capital allocation, the board of directors has resolved to distribute a 15% stake in Ninety One to our shareholders.”

Investec had a close to 27% stake in Ninety One at the end of March 2021.

Titi noted that the proposed distribution of Ninety One shares is subject to shareholders approval of the proposal, as well as regulatory and other approvals.

Excluding the value of the Ninety One distribution and assuming unchanged dividend coverage, shareholders can expect a total dividend of at least R4.40 for the entire year.

This represents a 5.7% dividend yield, actually a better income than depositing cash in a bank account.

Listen to Ciaran Ryan’s interview with Investec blockchain leader Chris Becker:

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