Investec holds its own

The spin-off of the UK wealth management business in a combination with Rathbones continued to command considerable management time and effort during the half for Investec (INVP). However, the interest rate-fuelled growth that has propelled the banking sector’s profitability seems to be continuing for the dual-listed South African investment bank and wealth manager. The company seems to be benefiting from a combination of decent levels of corporate broking and lending and a robust demand for wealth management services in its core markets.

At a statutory level, both the book and customer deposits saw growth, albeit not quite in sync. The loan book expanded by 4 per cent to £31bn (8.7 per cent at constant currency) while customer deposit growth was roughly half that at 1.9 per cent, to £39.9bn. The strength of the company’s southern Africa wealth management operation was illustrated by a net inflow of funds into its wealth division, which saw 2 per cent growth in funds under management to £20.2bn.

The UK wealth division now reports separately as part of Rathbones (RAT) and funds under management here topped £100bn.

Despite economic uncertainty prompting a slightly cautious note, management felt confident enough to repeat its forecast that return on equity will be above the mid-point of 12-16 per cent this year. The firm managed 14.6 per cent in these results. Without an extensive branch network to service its clients, the operating cost ratio came in at a trim 53 per cent.

Consensus forecasts put Investec on an anaemic price/earnings ratio of 7.3 for 2024. Operationally, it hasn’t done much wrong, but this reflects the currently low status of banks, as well as the impact of hiving off its UK wealth arm. Hold.

Last IC View: Hold, 435p, 19 May 2023