Investec maintains strong balance sheet for new opportunities

The Investec Group would review its provision overlays nearer the release of its annual results in May as there were still market risks from the Covid- 19 pandemic in the UK and South Africa and an as yet unknown impact of higher inflation associated with the invasion by Russia of Ukraine.

This was according to Investec CEO Fanie Titi, who spoke on Friday in an online event at the release of a pre- close trading update for the year to March 31. He said that there had so far been clear improvement in the group, but the possible impact of, for example, higher energy costs in South Africa and the UK from the high oil prices on the group’s generally high net worth clients and corporate clients, still needed to be assessed.

The implications of these risks on the group’s level of provisions would be considered near the end of the financial year, he said. A market analyst had questioned why the group was not releasing its higher credit provisions, given the good results indicated in the trading statement. Investec revised upward its adjusted earnings per share guidance for the year to end- March 31, to between 51 pence and 55p, from the 48p to 53p guided in November last year.

Adjusted operating profit before tax was expected to be between £ 642 million and £ 683m ( R12.6 billion), compared with £ 377.6m in the 2021 financial year “The trading performance for the eleven months has surpassed the pre- Covid comparative period, benefiting from strategic execution over three years and post- pandemic recovery. We have seen good momentum across all our businesses and continued growth in revenue,” said Titi.

The Southern African business’ adjusted operating profit was expected to be at least 30 percent ahead of prior year in rands from R5.51 billion ( 2021: £ 251.6m) in 2021. The UK business’ adjusted operating profit was expected to be at least 120 percent higher than the prior year’s £ 126m.

Group headline earnings per share of between 49p and 53p would be between 84 percent to 99 percent ahead of prior year’s 26.6p. For the 11 months to end February 2022, group operating performance was above the pre- Covid comparative period, benefiting from strategic execution and postpandemic economic recovery.

Pre- provision operating profit increased, supported by client acquisition, growth in funds under management ( FUM) and higher average advances.

Revenue momentum in the first half had continued into the second half. Net interest income benefited from lower funding costs and higher average lending books.

Increased client activity, higher lending turnover and supportive market conditions underpinned the growth in non- interest revenue over the period.

Fixed operating expenditure was “well contained”. The cost to income ratio was expected to improve as revenue grew faster than costs.

Expected credit loss impairment charges were significantly lower. Post- model provision overlays had been maintained.

Titi said their individual clients and corporate clients had proved to be resilient through the pandemic, with, for instance, corporate clients having strong balance sheets, and Investec’s clients were likely to remain resilient through the currency uncertainties.

Notwithstanding this, for instance, inflation in the UK was expected to reach as high as 8 percent and “we haven’t seen that level in many years,” Ruth Leas, CEO of Investec Bank plc said in the presentation.

She said the bank had been able to maintain lending margins until now, despite a “slight” widening in the spread and the fact that it was possibly still early days in the Ukraine crisis.

The Wealth & Investment business grew funds under management ( FUM) by 6.6 percent to £ 61.9bn, driven by net inflows of £ 2bn and positive market conditions.

In Specialist Banking, core loans grew 8.9 percent to £ 28.8bn, driven by corporate lending and residential mortgage growth in both geographies.

Group liquidity was strong.

“The recovery in performance underscores the continued resilience of our client franchises, and our strong balance sheet leaves us well- positioned to pursue identified growth opportunities,” Titi said.