Investec sees profit boost
Despite a challenging operating environment, Investec has seen a boost in profit for six months ended 30 September 2023 (1H2024).
“The Group has delivered strong results against a difficult macroeconomic backdrop, which was characterised by high inflation, elevated global interest rates and persistent market volatility,” Investec Group CEO Fani Titi said.
“This performance was underpinned by continued success in our client acquisition strategies, loan book growth and the rising interest rate environment. Our client franchises reported solid performance
while the aggregate Group financial results also reflect the impact of the conclusions of the strategic actions executed over the past 18 months.”
“Our balance sheet remains strong and highly liquid, positioning us well to support our clients in navigating the uncertain macroeconomic backdrop and achieve our financial targets.”
The group said that revenue benefited from double-digit growth in net interest income, primarily from strong corporate loan growth and rising global interest rates.
In spite of economic headwinds in the group’s core geographies, non-interest revenue in the South African wealth and investment businesses also grew.
“This was partially offset by the effects of the strategic actions, comprising the cessation of equity accounting of Ninety One post distribution and The Bud Group, following the restructure in 2022 and the deconsolidation of IPF,” the group said.
The cost-to-income ratio also improved to 53.3% (1H2023: 55.6%) as revenue outpaced costs.
However, Investec, like most South African credit providers, has seen a substantial rise in expected credit loss (ECL) impairment charges, rising from £29.4 million (R663.8 million) in 1H23 to £46.3 million (R1.05 billion) in 1H24.
This resulted in a credit loss ratio (CLR) of 32bps (1H2023: 16bps), which was near the upper end of the group’s through-the-cycle (TTC) range of 25bps to 35bps.
“We have seen idiosyncratic client stresses with no evidence of trend deterioration in the overall credit quality of the book,” the group said.
Return on equity (ROE) was also 14.6% (1H2023: 12.9%), within the group’s 12% to 16% target range, whilst the return on tangible equity (ROTE) was 16.4% (1H2023: 13.8%).
Looking through the group’s financials, the group’s headline earnings per share increased from 32.0 pence (R7.23) in 1H2023 to 36.9 pence (R8.33) in 1H2024.
In addition, the dividend per share increased from 13.5 pence (R3.05) in 1H2023 to 15.5 pence (R3.50) in 1H2024.
The group’s key financials can be found below:
Outlook
Notwithstanding the uncertain macroeconomic outlook, Investec said that it is well positioned to continue supporting its clients, with the group’s strong capital and liquidity allowing it to pursue identified growth initiatives in chosen markets.
The group said that moderate book growth, elevated interest levels, further customer acquisition and activity levels will underpin revenue momentum in FY2024.
The cost-to-income ratio is also expected to be below 55%, whilst the credit loss ratio will remain within the TTC range of 25bps to 35bps.
However, the outlook is more positive in South Africa, where the credit loss ratio is expected to normalise towards the lower end of the TTC range of 20bps to 30bps. The UK, on the other hand, is expected to see a credit loss ratio of between 50bps and 60bps.
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