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Investec defies South African uncertainty

The specialist financial group has also benefited from higher margins at its banking business
November 16, 2018

A fragile South African economy and political uncertainty hampered loan book growth and client trading levels for Investec’s (INVP) core specialist banking business during the first-half. Core loans were up just 2.4 per cent on a currency neutral basis, but the credit loss ratio remained at 0.3 per cent of the loan book – towards the lower end of the longer-term average range. Together with higher net interest margins, that enabled the South African banking business to report a 4 per cent rise in operating profits in rand terms.

IC TIP: Hold at 489p

No longer incurring substantial losses on the legacy portfolio meant material lower impairment charges in specialist banking businesses outside of South Africa, more than doubling operating profits for that segment. Overall specialist banking operating profits were up almost a fifth to £254m.  

Net inflows for the asset management business were £4.1bn, boosting assets under management to £91.5m. However, while the wealth and investment operations gained £650m in net inflows, higher operating costs associated with IT investment and compliance requirements meant that operating profits declined by 6 per cent to £46.4m.

Analysts at Numis expect pre-tax profits of £627m for the year-end, giving EPS of 46.6p (from £617m and 54.6p in 2018).

INVESTEC (INVP)    
ORD PRICE:489pMARKET VALUE:£4.9bn
TOUCH:488-489p12-MONTH HIGH:649pLOW: 451p
DIVIDEND YIELD:5%PE RATIO:9
NET ASSET VALUE: 614pLEVERAGE:15.1
Half-year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20171.1332625.810.5
20181.2538827.611
% change+11+19+7+5
Ex-div:6 Dec