Anglo-SA financial services group Investec, which recently spun off and separately listed its asset management arm, struck an upbeat tone at the presentation of its full-year results to end-March, increasing its dividend by almost a fifth year on year.
The group, which reported record funds under management in its wealth & investments division, raised its total dividend for the year to end-March by 18.2% to 13 pence (257c). Adjusted earnings per share declined by 14.7% to 28.9p, while return on equity slipped from 8.3% to 6.6%.
Investec CEO Fani Titi reaffirmed the group’s commitment to raising its return on equity to between 12% and 16% over the medium term, or about three years.
“We expect a recovery in revenue, driven by higher activity levels and we expect better impairments,” said Titi.
“Secondly, we have taken significant action on reducing the overall cost base of the business. Thirdly, we have improving capital allocation. We are moving capital from noncore or subscale businesses to activities that generate higher returns,” he said.
Investec expects adjusted earnings per share for the current financial year to be between 36p and 41p, an increase of 33% (based on the midpoint) over the reported results to end-March.
The hedging and risk reduction costs that erased much of the UK specialist bank’s profitability in the first half of the year, came in lower than forecasted for the full year.
The costs related to the management of volatility of the bank’s structured deposit book, that in part uses derivatives to boost the yield paid to depositors.
Investec said at its interim results to end-September 2020 that it expected costs relating to these risk mitigation strategies to rise to £106m for the full year. Reported costs came in at £93m, and are expected to be below its initial guidance at £30m in the current year.
The UK specialist bank reported a 56% decline in adjusted operating profit to £44.8m, despite growing its lending book. By contrast, the SA specialist bank generated £231m in operating income, representing a marginal decline in rand year on year.
Investec Bank UK CEO Ruth Leas said the highly successful vaccination programme undertaken by the British government has spurred positive sentiment about the economy.
“The City [London’s financial district] is very busy, the offices are starting to fill up, and there is generally a very optimistic spirit around,” said Leas.
The view on interest rates has pivoted quite drastically, said Leas. The Bank of England was preparing the industry for negative interest rates in 2020, but “there is now more of a concern about rising interest rates. I personally think we will see rates lower for longer, but we will have to see how the economic recovery plays out.”
Investec’s wealth & investment business reported growth in funds under management of 30.4% to £58bn year on year, reflecting a market recovery, good investment performance and continued net inflows of £1.1bn.
Investec Bank SA chief Richard Wainwright said the economic environment is improving and, with it, the chance for the bank to realise more investments.
“There is demand for good-quality assets from trade buyers, and internationally from private equity funds and, more recently, from Spacs [special purpose acquisition companies]," said Wainwright.
The bank wants to reduce its investment portfolio by a further R3bn to R15bn over the short term.
With Karl Gernetzky
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