■ Impairment levels down
■ South African banking robust
■ Sterling profits hit by the weak rand
Specialist bank and asset manager Investec (INVP) is expected to deliver full-year results substantially ahead of the previous year. That's underpinned by a strong performance at the wealth management and investment business, which benefited from a net fund inflow of £1.1bn, while the asset management side enjoyed net inflows of £2.5bn. The improvement in profits will also reflect an estimated 35 per cent decline in impairment charges.
Recurring income as a percentage of total operating income is expected to have risen from 69 per cent to 72 per cent, too. And management is also making progress with efforts to reshape the business. That includes selling part of its Australian operation along with plans to dispose of the UK intermediary mortgage business, Kensington.
The asset management side is set to deliver operating profit that's moderately ahead of the previous year, but trading has been affected by quantitative easing 'tapering' in the US and the repricing of emerging markets assets. Specialist banking, meanwhile, saw a 7 per cent increase in the loan book, while the cost of funds in the UK and Australia were slightly lower. Trading income from the South African unlisted investment portfolio remained robust, however, although earnings from the UK fixed-income portfolio was lower.
Numis Securities says...
Buy. We have upgraded our earnings forecast by 4.5 per cent to 37.4p for the current year and by 7 per cent to 39.7p for 2015. The upgrade reflects better than anticipated balance sheet growth and a continued strong performance from the high value asset and wealth management businesses. Credit quality is also improving and we see Investec as one of the few significant recovery plays among the specialist UK lenders - something that will become more obvious after the disposals of Kensington and the Australian back book assets. Yet the shares trade on just 1.1 times book value. Expect pre-tax profits for the end of March 2014 of £457.8m, compared with £436.5m in 2013, and an 18p dividend.
Canaccord Genuity says...
Buy. We see the disposal of Kensington as a step in the right direction. It accounts for £1.3bn of assets on the balance sheet and, with around £500m on loan in Ireland, we expect this business to have a long tail in run off. Crucially, the sale will free up a lot of capital and lower the group's risk profile. Even without this, the valuation profile is compelling and we calculate a sum-of-the-parts valuation of 600p a share. For 2014 we are forecasting underlying pre-tax profits of £397m, giving EPS of 30p.
