Investec prospers despite itself

Investec’s (INVP) results were a bit of a curate’s egg as the South African investment bank and wealth manager floated on the tide of much improved markets, while at the same time trying to reorganise itself. While profits, dividends and impairment charges all showed positive movements, the doubts over whether the bank has the cost base and flexibility to sustain the performance were not dispelled by these results.

In common with other financial institutions this year, the bank booked lower impairment charges of £99m, compared with £133m last time. Unfortunately, this was more than offset by the losses in the group’s troublesome structured products book. This chopped profits at the UK and specialist bank by 56.4 per cent to £44.8m as Investec unwound the risks from the book. Management has been trying to gain control of costs by reducing headcount in London and moving jobs to lower-cost areas. However, the majority the reduction in its cost ratio came from a big fall in discretionary spending – specifically, the end of a marketing contract in the UK that stripped out over £20m in non-recurring costs.

It is fair to say that Investec ranks awkwardly among the UK-based investment banks as it shares the same quality of not really being able to forecast next year’s performance, combined with the uncertainty over its home markets in South Africa, along with a habit of generating unforeseen costs. It remains to be seen whether the bank’s latest reorganisation plan has the desired impact on its fortunes, but with credit rating agency Fitch maintaining its negative outlook for parts of Investec’s debt, there seems little incentive to change our cautious stance. Hold.

Last IC view: Hold, 188p, 20 Nov 2020