Investec expects jump in earnings

JSE-listed investment banking giant Investec expects its headline earnings per share to be between 4.8% and 10.6% higher than in 2023 when it announces its full-year results ending 31 March 2024 in May.

In a pre-close trading update and trading statement for FY 2024, the group said its diversified revenue streams and the success of client acquisition strategies across its franchises underpin its performance, despite an uncertain macroeconomic environment and persistent market volatility.

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Investec, which has a dual listing on the London and Johannesburg stock exchanges and operates in South Africa and the UK, saw its share price firm over 3% on Wednesday, to close R121.39 a share following the Sens update.

The group said the average rand/pound sterling exchange rate depreciated by approximately 15% in the 11 months to 29 February 2024, which led to a significant difference between reported and neutral currency performance.

For the year ending 31 March 2024, the group expects:

  • Adjusted earnings per share between 10% to 16% ahead of the prior year.
  • Adjusted operating profit for the UK business is expected to be at least 15% higher than the previous year.
  • The adjusted operating profit for the South African business is expected to be at least 10% ahead of the previous year.
  • Basic earnings per share between 102.9 UK pence and 106.8 pence or 19.9% to 24.5% ahead of the previous year.

The rise in basic earnings per share is thanks to the positive impact by the net gain from the implementation of the UK Wealth & Investment combination with Rathbones, which was partly offset by the effects of the deconsolidation of Investec Property Fund (now known as Burstone Group Limited).

One of Investec’s strategic actions in the past year was the combination of Investec Wealth and Investment UK with the Rathbones Group. The merger, valued at £839 million, was announced in April 2023.

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Investec expects to be the main shareholder, with a 41.24% stake and 29.9% voting rights. Together, the combined entity will create a wealth manager overseeing around £100 billion in funds under management and administration.

Fani Titi, Investec’s group CEO, said in a telephonic pre-close briefing on Wednesday that the proposed combination of its UK Wealth and Investment business with Rathbones had been approved in September 2023 by the regulatory authorities.

“The management teams are confident that the synergies between the two entities will be achieved. The execution however is in the hands of Rathbone’s management,” added Titi.

In its trading update, Investec made mention of a provision it had to make for the potential impact of a recently announced investigation by the Financial Conduct Authority (FCA) in the UK into historical motor finance commission arrangements and sales.

The profits of Specialist Bank, a division of Investec Bank Limited, is expected to be at least 30% higher than the prior year and this expectation already incorporates a provision of the potential impact of the FCA review.

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Asked during question time what the size of the provision is, Titi said the exact numbers will be provided when Investec announces its full year results in May.

Fani Titi, Investec, Investec results

Fani Titi, group CEO of Investec. Image: Moneyweb

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“Our view is we conducted our business in line with the regulations and laws and we remain confident that we were compliant, but clearly there is an investigation. We have looked at a number of different scenarios and potential outcomes and on a prudent basis we’ve made a provision,” he said.

Investec is “comfortable” with its own assessment of its potential exposure, but its relative book size to market at the time was small. “We don’t expect it to be as material compared to other players in the market,” added Titi.

In January 2024, the FCA announced it would look into all the historical motor finance commission arrangements and sales across several firms.

The FCA said in a statement should it find widespread misconduct and that consumers have lost out appropriate action will be taken to ensure these customers receive compensation.

Investec’s share price

Roy Walsh

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