Strong recovery in UK boosts Investec

Management indicates that performance is set to continue, if not improve.
SA operations were still producing most of the group’s profits, but the predictions of UK vs SA economic growth indicate that this might change. Image: Waldo Swiegers/Bloomberg

Investec Group’s results should not have come as a surprise, as management already told investors some two months ago – on March 18 to be precise – that earnings for the year to March 2022 would be close to twice that of the previous financial year. Nevertheless, the formal figures make for interesting reading.

Adjusted earnings per share increased by nearly 91% to 55.1 pence compared to 28.9 pence in the year to March 2021, with group CEO Fani Titi commenting in his results presentation that earnings came in at the top end of the guidance provided after the first 11 months of the financial year.

While Titi presented a list of things that contributed to the very strong recovery in Investec’s fortunes, a look at the numbers shows that it was the remarkable turnaround in the UK economy that boosted profits.

Operating profit accounted for in Investec plc increased by a massive 138%, from £126 million to nearly £300 million.

The SA operations performed well too, but the growth in adjusted operating profit at Investec Ltd was a more subdued 54% (£387 million, compared to £252 million in the previous year). However, one should note that a rather strong exchange rate during the last year skewed the SA figures, with the Investec group reporting combined figures in pound sterling.

Group CFO Nishlan Samujh noted that the UK economy recovered surprisingly fast since the relaxation of Covid-19 restrictions.

“The UK economy is exceeding pre-pandemic levels,” he says, but warns that the very strong growth seen during the last year is expected to slow due to inflationary pressures. Investec expects the UK economy to grow by around 4% in 2022 and 2.2% in 2023.

Read: Investec asks SA staff to get vaccinated or pay for tests

The SA economy has also recovered from the disaster of 2020, but is yet to recover to pre-pandemic levels. Samujh indicated in his presentation that Investec pencilled in growth of 1.8% in 2022 and 2% in 2023.

SA operations are still producing most of Investec’s profits, but the predictions of economic growth in the UK versus that in SA indicate that this might change soon.

Read: Investec to offer private bank clients solar-power financing

Titi pointed out that the group’s results were ahead of pre-pandemic 2019 figures. The figures show that earnings per share are only slightly better than in 2019, increasing from 52.5 pence in the year to March 2019 to 55.1 pence in the latest year to end March 2022.

Further improvement

Titi alluded to further improvement, saying that Investec made good progress towards its target of increasing return on equity to between 12% and 16%. It fell to just 6.6% in the 2021 financial year and recovered to 11.4% in the past financial year.

“Each of the businesses are generating returns in excess of the cost of capital,” says Titi. He also notes that there are opportunities to manage capital better, with some units sitting with excess capital.

“We have strong liquidity and capital to support growth, with significant capital optionality in South Africa. We remain committed to our medium-term targets.

“The group is well positioned to serve its carefully chosen client base and continues to navigate the uncertain outlook emanating from ongoing inflationary pressures and the economic effects of the invasion of Ukraine,” he says.

Shareholders

The two listed Investec entities are also on the list of shares that investors wish they had scooped up when Covid-19 hit the JSE in March 2020, as both tripled from their lows.

The Investec Ltd share price hit a low of R30 then, and recovered to the current price of above R90. Investec plc ran from R28.52 to R89.

In addition, shareholders got a bonus when Investec unbundled its interest in its asset management company, Ninety One, to shareholders.

Titi points out that the distribution of the Ninety One stake is set to return billions to shareholders.

“With the pending distribution of 15% of Ninety One to shareholders, Investec would have returned an aggregate value of approximately £1.6 billion or R32 billion to shareholders through the demerger and distribution on successful completion,” he says, based on Ninety One’s closing share price on May 16.

The Investec board also proposed a final dividend of 14 pence per share for a total annual dividend of 25 pence, close to double the 13 pence of the previous year.

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