Investec will double down on initiatives to grow organically in the coming year to boost return on equity after the conclusion of an operational overhaul to cut expenses and shut down underperforming businesses.
CEO Fani Titi struck an optimistic tone in interviews accompanying the company’s annual results, which showed a 14% drop in earnings, recommitting the group to meeting its medium-term target of 12%-16% for return on equity, an important measure of how well a company is performing for its shareholders.
Investec has been overhauling its operations recently in a bid to boost returns, including winding down its Australian operations in December 2020, reorganising its UK bank to remove duplicate jobs and relocating certain functions to lower-cost geographies.
With the programme largely concluded, the London-domiciled UK specialist bank, which spun out its asset management business under the name Ninety One in 2020, will progress its organic growth strategies, says CEO Ruth Leas.
“The focus is on organic growth; things [assets] are very expensive,” Leas said in an interview accompanying the results presentation.
The bank has identified a target market of 90,000 individuals and families that meet the bank’s quantitative and qualitative eligibility criteria. Through its presence in London and the Channel Islands, the bank now has 6,000 clients who meet the criteria. The group aims to grow this to as many as 9,000 clients in the near term.
“That target is within reach at the rate at which we are growing. That will be an exceptionally strong base for a company of our size to interact with across the business and the First World side. So it’s going very well,” said Leas.
Clients need to be entrepreneurial while still growing their wealth and “don’t have much time”. Prospective clients need to earn at least £300,000 a year and have net investable assets of £3m.
Leas says the average new client — joining at a rate of 80 a month — greatly exceeds these requirements, with an average income of £700,000 a year and a net asset value of £11m.
The offering to wealthy individuals is being augmented with the development of a transactional banking offering for the underserviced private company market.
On Friday, the specialist bank and wealth manager, which still retains a 25% stake in Ninety One, reported a 14% decline in adjusted earnings per share to 28.9p (572c) for the year ending March. The total dividend rose 18% to 13p. Investec forecasts earnings per share for the financial year to end-March 2022 to rise about 33%, driven by higher client activity levels and lower bad-debt expenses.
The results would have been better were it not for heightened volatility at the start of the financial year, as markets appraised the economic consequences of lockdowns and restricted global trade.
This, with the suspension of dividends by large, publicly listed companies, distorted the pricing of derivatives used in Investec’s British structured deposit book.
The UK bank implemented risk reduction and mitigation strategies to counter the volatility that cost £93m during the period, an improvement on the original estimate of £106m. Costs are expected to fall below £30m for the financial year.
The costs contributed to the 56% decline in the UK specialist bank’s adjusted operating profit, which fell to £44.8m.
The SA specialist bank saw operating profit decline by just 12% to £231m.
The declines in banking were offset by a strong performance from the UK wealth and investment (W&I) division, which lifted operating profit 18% to £74.3m. Earnings were flat for the Southern Africa W&I.
In a separate statement released on Friday, the group announced that former JSE CEO Nicky Newton-King and renewable energy executive Jasandra Nyker will join the board effective immediately.
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