Investec profit warning increases heat from investors

It expects its adjusted earnings per share, to be between 8.3 pence and 10.5 pence.
Image: Moneyweb

Investec warned on Friday that its profit could fall up to 63%, largely due to the coronavirus crisis, knocking its shares as some investors questioned the South African firm’s structure.

Severe economic contractions, volatile financial markets, lower interest rates and a depreciation in the rand had combined with some “effective tax rate normalisation” to hit its performance, Investec said in a statement.

Investec said it expects its adjusted earnings per share, which reflect profits on ordinary operations, to be between 8.3 pence ($0.1076) and 10.5 pence in the six months to September 30, compared to 28.9 pence a year earlier.

That represents an up to 63% decline in profit from continuing operations, or up to 71% when the impact of the demerger of asset management business Ninety One is not excluded. The warning prompting Investec shares to fall by more than 4.5% and the stock was down 3.38% by 0845 GMT.

Investors raised concerns on a call with Investec management about how its structure made it hard for shareholders to calculate the value of the company.

Investec spun off Ninety One as planned in March, but opted to suspend a planned sale of a 10% stake due to market volatility, meaning it retained a 25% stake overall.

Shane Watkins, chief investment officer of specialist asset manager All Weather, said on the call that while Investec was on the right path operationally, its “sub-optimal” structure was a problem.

“The fact is the market doesn’t like it… and it doesn’t reflect your value properly,” he said, adding unbundling the Ninety One stake would also unlock value.

Investec Chief Executive Fani Titi said the group was working on significantly improving its disclosures.

South Africa has seen a string of unbundlings in recent years as firms have looked to dismantle complex shareholding structures, with investors arguing these trap value.

COMMENTS   4

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Depreciation of the Rand – oh really by a massive 4.8 %?

It’s a well-known fact that SA Banks are looking at options ranging from debt consolidation to new ways of leveraging equity to avoid defaults when the coronavirus-related debt relief measures end.

Some of the bigger banks gave customers in good standing relief on loans during the pandemic, including payment holidays of up to three months. But some consumers are still in trouble due to different criteria etc.

Some, but not all banks have offered extensions, while others like Capitec offered to refund interest accumulated during payment holidays. Most of the smaller ”mom and pop shop” banking operations just don’t seem to have made provisions and or calculated the impact of job losses on their operations – the inevitable reality of an avalanche of property evictions will result in all sorts of additional risks for banks.

Mortgages make up 59% of R489 billion in loans considered at risk, according to the Banking Association of South Africa (Basa), hence the additional threat to the smaller operations.
I recently even saw discussions/options that could include leveraging the equity in properties, including family members’ properties, in new ways, using pensions, or granting term extensions on mortgages.

All I can say to the banks – leave the pensions alone, and if you don’t you will be doing that at your peril and don’t ever criticize the Government if that starts playing with pension funds to gap their budgetary hole!

Investors methinks should be wide awake at times like this as we have already seen some big failures, the last couple of years in the financial markets in sunny SA – some of them did not provide a full picture of their financial health – It’s important to be aware that what’s undisclosed can be just as significant as the disclosures. Be alert for misrepresentations or failure to fully account for both assets and liabilities on the balance sheet, whether they’re merely unrecorded or deliberately hidden. What might lurk under the surface – financial engineering?

Interesting to see that the SA bank that pays the least tax (proportionally to income) announces that profits are down due to “some “effective tax rate normalisation”. Are they getting scared of the Receiver boogeyman?

I feel sorry for Mr Titi. Since he took over:
1. The best Investec business listed separately-its his only pot of honey now
2. COVID 19 struck-bad debts, no growth in lending book or fees etc.
3. SA hit junk status.
4. The UK MD Mr van der Walt “resigned”
5. Investec has a large investment in Investec property fund which is an unhappy sector
6. Investors are fleeing with their rands going to global private banks so Wealth Management results will be mediocre -and the CEO -horrible Henry is elderly old now
7. Investecs Hong Kong CEO, Dick Forlee, also resigned due to colossal investment losses in some fraudulent Chinese petrochemicals company

Would you take a punt on Investec of Absa?

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: