February 7, 2023

Shares rise on encouraging earnings outlook
– Both wealth management and specialist banking positioned for growth
– Shares up 34% over last year
Shares in specialist bank and wealth manager Investec (INVP) moved higher following the announcement of encouraging first half results.
Management expects strong earnings for the first half of its financial year, despite tumultuous market conditions and continued macro-economic uncertainty.
For the six months ending 30th September 2022, the Group expects adjusted operating profit in the UK and South African businesses to be at least 20% and 10% ahead of the prior period
Adjusted operating profit before tax is expected to increase to between £372.6 million and £406.2 million, a significant improvement on the prior year figure of £325.7 million.
The group anticipates first-half headline earnings per share will rise to between 30.0p and 34.0p, up from 24.7p.
Investec said ‘The operating performance reflects the benefits from continued strategic execution and the diversity in the group’s revenue streams.’
According to Bain & Company the wealth management sector is set to double in size by the end of the decade. Investec is well positioned to benefit from this trend.
Although for the five months period ended 31 August 2022, funds under management declined by 2.7%, the group remains a scale player in both the UK and South Africa with £61.7 billion of assets.
Investec will be a key beneficiary of the growing need for advice in affluent and high net worth client segments.
The bank’s UK and Swiss presence also enables it to provide offshore banking, which is valued by its South African client base.
Investec’s banking business is focused on high net worth clients, with loans and mortgages to this segment accounting for 44% of its loan book. The remainder consists primarily of corporate and property lending.
Investec does not offer mass-market retail banking and given the higher credit quality of its clients, generates a lower level of impairment than many of its peers.
Today’s results have highlighted how Investec’s banking divisions still have growth opportunities.
Within Specialist Banking, core loans grew by 7.8% to £30.9 billion, driven by corporate lending in both geographies and residential mortgage growth predominantly in the UK.
Berenberg analyst Alexander Bowers believes ‘the bank currently operates with excess capital which could either be distributed or used to drive growth.  Despite the shares rising 34.3% over the last year ‘Investec still trades at a 0.7 price/book value’.
According to Berenberg’s estimates Investec is trading on a 2023 PE (price-to-earnings per share) multiple of 6.8x and a dividend yield of 6.5%. In 2024 the multiple falls to 5.97x and the dividend yield rises to 7.4%.
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