Investec has advised shareholders to expect a significant jump in earnings when it publishes its annual results in April, with the niche bank saying its operating performance has risen above pre-pandemic levels on the back of a global economic recovery.
The private bank and wealth manager, which is listed in Johannesburg and London, published a pre-close trading update on Friday, expecting adjusted pretax operating profit for the year to end-March 2022 to be between £642m (R12.6bn) and £683m. That compares with the £377.6m reported the previous financial year.
Adjusted earnings per share for financial year 2022 are expected to be between 51p and 55p, which is between 76% and 90% ahead of the prior year. That is also higher than the group’s previous earnings guidance of 48p to 53p provided in November.
Basic earnings per share are expected to be between 48p and 52p, which is 90% to 106% ahead of the prior year, while headline earnings per share, a profit measure that excludes one-off items, is expected to be between 49p and 53p, or 84% to 99% higher.
“Group operating performance has surpassed the pre-Covid-19 comparative period. We have seen good momentum across all our businesses and continued growth in revenue,” said Fani Titi, Investec’s group CEO. “The recovery in performance underscores the continued resilience of our client franchises and our strong balance sheet leaves us well positioned to pursue identified growth opportunities.”
Investec’s Southern African business’ adjusted operating profit is likely to be at least 30% ahead of the prior year’s R5.510bn (£251.6m) while the UK business’s adjusted operating profit is anticipated to be at least 120% higher than the prior year’s £126.0m.
Investec said its performance in the past financial year was supported by continued client acquisition, growth in funds under management (FUM) and higher than average loan advances. Net interest income benefited from lower funding costs and above average lending books. Noninterest revenue was also supported by increased client activity, higher lending turnover and supportive market conditions.
The group said its cost to income ratio improved in the period as revenue growth outpaced costs thanks to a strong focus on efficiency while variable remuneration grew in line with revenue. Expected credit loss impairment charges were significantly lower due to limited defaults and ongoing recoveries.
For the 11 months to end-February, Investec’s wealth and investment unit grew its FUM 6.6% to £61.9bn, driven by net inflows of £2bn and positive market conditions. However, the group cautioned that market volatility in the wake of Russia’s invasion of Ukraine may affect the overall FUM figure as at end-March, when its annual results are published.
“The group has no material direct or indirect exposure to Russia or Ukraine,” said Titi, adding that Investec had no clients that had yet been named on Western sanctions lists, though he said the bank continued to monitor the lists.
“Names are getting added on an ongoing basis,” he said. “Clearly the volatility that has appeared in the market is negative ... and secondly the impact on energy prices has the potential to impact economic growth around the world. SA specifically is an importer of oil and with oil prices going as high as they have that will feed negatively into our inflation outlook.”
Investec’s specialist banking division grew core loans 8.9% to £28.8bn, driven by growth in corporate lending and residential mortgage growth in both the UK and SA. The group said it remained well capitalised with strong liquidity, and was well positioned to pursue growth opportunities.
The banking group is scheduled to publish its results for the year ended March 31 on May 19.
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