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Investec confident of continued recovery

Increases cash dividend and elects to distribute most of its interest in Ninety One.
The group achieved an 87% increase in banking profits in SA. Image: B Bahr/Getty Images

A couple of weeks ago Investec “warned” shareholders that its interim results for the six months to September 2021 would be significantly better than those of 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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Group CEO Fani Titi correctly described the results as a remarkable achievement, taking into account that both Investec plc in the UK and Investec Ltd in SA operated under difficult circumstances.

The UK banking and wealth management operations were still plagued by lengthy lockdowns, while the SA economy is still struggling.

The separate business entities nonetheless both performed well.

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

Profitable period

Notes to the income statement show that operating profit at the SA wealth and investment division increased by more than 30% to £15.6 million. The wealth and investment cluster in the UK and other international businesses 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.

The operating profit of the banking operations of Investec plc recovered from a low £12.9 million in the six months to September 2020 to nearly £85 million in the six months under review – a 555% improvement.

In SA, Investec Ltd posted an increase of 87% in banking profits, from £93 million to £173 million.

It is noticeable that everything seems to have gone right in the banking businesses. Activity levels were higher, bad debts and provisions for bad debt were lower, and costs decreased.

In SA, the expected credit loss charges decreased to only £4 million (a provision of about 4%), compared with £24 million (35%) in the first half of the previous financial year. In the UK, impairments declined by 88% compared with a year ago, as bad debt was lower than previously expected.

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

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“We are confident that the momentum will continue,” says Titi, proving his confidence by telling shareholders and analysts that management has upped its guidance with respect to earnings forecast for the full financial year to March 2022.

Management expects the companies to achieve earnings per share of between 48 pence and 53 pence, compared with the 28.9 pence earned in the financial year to March 2021. In the case of Investec Ltd, the forecast translates to a forward price/earnings ratio 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 look forward to a nice 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,” said Titi.

Ninety One distribution

“Further, in line with our strategy to optimise the allocation of capital, the board has resolved to distribute a 15% holding in Ninety One to our shareholders.”

Investec held an interest of close to 27% in Ninety One at the end of March 2021.

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

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

This represents a dividend yield of 5.7% – actually a better income than putting cash into a bank account.

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

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