Investec reports strong year despite challenging backdrop

Adjusted earnings per share increased 25% to 68.9p, exceeding previous guidance and reflecting its ability to navigate difficult market conditions, the board said.

However, funds under management decreased 4.5% to £61bn, primarily due to unfavourable market movements.

Net inflows of £377m were observed, with discretionary funds under management seeing inflows of £810m, partially offset by net outflows of £433m in non-discretionary funds under management.

Net core loans experienced a 7.7% increase in neutral currency, reaching £30.2bn, which the board said was driven by corporate lending and residential mortgage lending across its core geographies.

Customer accounts, or deposits, increased 5.8% in constant currency, but decreased by 1.4% to £39.6bn on a reported basis.

Revenue grew 14.6%, benefiting from higher global interest rates, loan growth, client acquisition, and increased client activity.

However, fee and commission income were negatively impacted by unfavourable market movements, as well as a weakening macroeconomic environment.

The firm said its cost-to-income ratio improved to 59.6%, compared to 63.3% in the 2022 financial year, as operating costs grew by 9.5%.

Fixed operating expenditure increased 11.3%, driven by inflationary pressures, investments in people and technology to support growth, and the normalisation of discretionary spending after the pandemic.

Pre-provision adjusted operating profit rose 28% to £917m, supported by the group's revenue stream diversity.

Asset quality remained strong, Investec said, with exposures well covered by collateral.

Its expected credit loss impairment charges increased to £81.1m, resulting in a credit loss ratio of 23-basis points, approaching the lower end of the group's through-the-cycle range of 25-to-35 basis points.

Return on equity for the year ended 31 March was 13.7%, up from 11.4% in the prior year, while its return on tangible equity reached 14.7%, compared to 12.3%.

Tangible net asset value per share remained relatively flat at 474.3p, while net asset value per share stood at 510p.

Investec said it continued to execute on its strategic priorities in the period, focusing on disciplined growth and implementing capital optimisation strategies.

Notably, after the reporting period, Investec announced the all-share combination of Investec Wealth & Investment UK with Rathbones, aiming to create a leading discretionary wealth manager with around £100bn in funds under management and administration.

The group maintained a strong capital and liquidity position, and the board proposed a final dividend of 17.5p per share, resulting in a full-year dividend of 31p, within the group's payout range of 30% to 50%.

“The group reported strong results in a challenging macro backdrop, with all our client franchises reporting growth in pre-provision adjusted operating profit,” said group chief executive Fani Titi.

“Our focussed approach to support our clients and the diversified nature of our revenue streams underpinned the financial performance.

“We achieved adjusted earnings per share of 68.9p - a 25% growth on prior year, and made significant progress against the strategic goals outlined in 2019, with the group's return on equity well within the 12% to 16% target range set out for achievement in 2024.”

Titi noted that during the period, Investec returned about £780m to shareholders, comprising ordinary dividends, the share purchase programme to optimise the balance sheet, and the distribution of a 15% shareholding in Ninety One.

“The strong capital generation across the group allows us to maintain robust capital and liquidity levels, deliver improved returns to our shareholders, and support our clients, colleagues, and societies through an uncertain economic environment.

“We are proud of the progress we are making to entrench sustainability across every aspect of our business.”

At 1141 BST, shares in Investec Group were up 0.82% at 440.8p.

Reporting by Josh White for Sharecast.com.