Investec lifts earnings guidance after strong first half

Investec reported first half revenue growth of 30.5% on Thursday, to £951.1m, which it put down to “strength” in its client franchises and improved market conditions, as it lifted its earnings guidance for the full year.

The FTSE company said adjusted earnings per share were ahead 134.8% year-on-year for the six months ended 30 September at 26.3p, ahead of pre-Covid-19 levels two years earlier as well.

Wealth and investment funds under management grew by 8.6% to £63bn, underpinned by net inflows of £1.5bn, as well as market recovery and good investment performance.

Loan books within specialist banking were 7.2% higher at £28.3bn, which the board put down to increased activity levels and continued client acquisition in both geographies.

The company’s cost-to-income ratio improved to 64% from 72% year-on-year, with operating costs increasing 11.7%, while fixed operating expenditure increased 3.3% reflecting continued cost discipline.

Pre-provision adjusted operating profit increased 61.2% to £336m, which was also 9.3% ahead of the pre-pandemic level in September 2019.

Expected credit loss impairment charges were 84.5% lower, resulting in a credit loss ratio of seven basis points, down from 35 basis points at the end of March and 47 basis points a year ago, reflecting “strong” asset quality and higher recoveries.

Investec’s return on equity was 11.2% for the period, up from 5.3% year-on-year, and its return on tangible equity rose to 12.1% from 5.8%.

The firm’s tangible net asset value per share increased 10.2% on an annualised basis to 445.2p, while its net asset value per share improved 9.3% to 479.2p.

Investec said it maintained “strong” capital, funding, and liquidity positions, with the board proposing an interim dividend of 11.0p, up from 5.5p year-on-year and resulting in a payout ratio of 41.8%.

The directors had also further resolved to distribute a 15% holding in Ninety One to shareholders.

Looking ahead, Investec updated its guidance for 2022 financial year adjusted earnings per share guidance to 48p and 53p, from the 36p to 41p range it pencilled in back in May.

“The group delivered a strong first half result, underpinned by resilient client franchises, strong revenue momentum and sound asset quality - resulting in adjusted earnings per share of 26.3p, ahead of comparable pre-Covid levels,” said group chief executive officer Fani Titi.

“I am pleased to share that the board has proposed an interim dividend of 11.0p, relative to 5.5p in the first half of the 2021 financial year.

“Further, in line with our strategy to optimise the allocation of capital, the board has resolved to distribute a 15% holding in Ninety One to our shareholders.”

Titi said the strength of the relationships the company had built with its clients was reflected in the “trust” they were placing in Investec.

“The changes made to simplify and focus the group are bearing fruit, positioning us well for the future.

“Our resilient business model and strong balance sheet will support our drive to achieve sustainable long-term value and growth for our colleagues, clients, shareholders, and societies in which we live.”

At 0840 GMT, shares in Investec Group were up 0.37% at 354.8p.