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Investec shows resilience in tough times

A strong performance in its banking and wealth and investment arms helped the bank and asset manager achieve profit growth under difficult circumstances
May 20, 2016

"Dodging land mines" was how Investec's (INVP) managing director, Bernard Kantor, described the challenges faced by the bank and asset manager in the year to 31 March 2016. While the Brexit referendum was blamed for causing uncertainty in UK markets, South Africa - a key market for the company - faced economic, political and social issues so severe that its credit rating may soon be downgraded to junk status.

IC TIP: Hold at 465p

With that in mind, adjusted operating profit growth of 3 per cent to £506m looks respectable, particularly as it would have been nearer 14 per cent if the rand hadn't depreciated 16 per cent against sterling. Driving this success was a 4 per cent rise in its specialist banking operating profit to £409m. Loan books surged by a fifth in South Africa, as the group's wealthier clients emerged relatively unscathed from the country's economic downturn. Similar joy was achieved in the UK, while the division was also boosted by a good performance from its debt securities and Hong Kong investment portfolio.

Wealth & Investment similarly put in a decent performance, as its investment in technology came to fruition. But market volatility, rand depreciation and lower performance fees triggered by reduced assets under management sent operating profit in the asset management arm down a tenth to £135m.

Analysts at broker Numis Securities expect pre-tax profit of £579m and EPS of 43.3p for the year to March 2017, compared with an estimated £549m and 41p in FY2016.

INVESTEC (INVP)
ORD PRICE:488.5pMARKET VALUE:£4.4bn*
TOUCH:488,4-488.8p12-MONTH HIGH:650pLOW: 402p
DIVIDEND YIELD:4.3%PE RATIO:13
NET ASSET VALUE:370p*†LEVERAGE RATIO: 6.9

Year to 31 MarPre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201229125.717.0
201339432.518.0
201442434.319.0
201539224.420.0
201651838.521.0
% change+32+58+5

Ex-div: 28 Jul

Payment: 10 Aug

*Includes UK-listed and South Africa-listed shares

*†Includes intangible assets of £516m, or 57p a share