Investec announced a record interim dividend after its half-year profit almost doubled and said it would extend its share buyback programme, which was first floated about six months ago.
The London- and Johannesburg-listed bank, which reports its results in pounds, said in a stock exchange filing on Thursday profit attributable to shareholders rose 91.5% to £478.12m (R9.86bn) in the six months to end-September, from £249.63m in the corresponding period the prior year. Headline earnings per share, a profit measure that strips out one-off items, rose 29.6% to 32p, up from 24.7p the previous half year.
The bank’s strong showing in its financial first half allowed the board to propose its highest interim dividend of 13.5p a share, a 22.7% increase on the prior half-year payout of 11p. Investec also flagged its intention to extend the quantum of its share buyback programme to R7bn to reduce the excess capital it is carrying on its SA balance sheet.
“The group’s earnings growth momentum continued, underpinned by strong revenues from our diversified client franchises and a focused approach to support our clients,” CEO Fani Titi said. “We have made good progress on our capital optimisation strategy as we seek to return excess capital from the SA balance sheet to shareholders.”
Titi first hinted at the possibility of share buybacks in a May interview with Business Day in which he indicated that a surfeit of capital in the SA business created significant “optionality” in terms of what to do with the money. At the time, he said Investec may opt to return capital to SA shareholders through share buybacks or by declaring a special dividend.
“Our preferred route is the buyback because in the end we’d like to have fewer outstanding shares,” Titi said on Thursday. “We’ve given ourselves 18 months to execute the buyback.”
The group’s earnings growth momentum continued, underpinned by strong revenues from our diversified client franchises and a focused approach to support our clients.
— Fani Titi, Investec CEO
Details of the share buyback were first unveiled in a stock exchange filing in early October, which revealed that Investec had appointed JPMorgan Equities SA to purchase shares on the JSE and London Stock Exchange as well as other trading platforms in the UK. That buyback programme, which was limited to a maximum aggregate market value equivalent to R1.2bn, was scheduled to run from October 3 and end on or before November 17.
Titi said the extension of the programme to R7bn meant it would now purchase an additional R5.8bn on top of the R1.2bn announced in October. He added that Investec had thus far used only about R540m of the R1.2bn October allocation on share buybacks, leaving “significant room” for it to continue buying its own shares.
The bank’s strong half-year performance was underpinned by rising interest rates. Titi said Investec earns R90m-R100m more a year for each 0.25% rise in interest rates in SA and £10m-£15m per annum for every equivalent rate hike in the UK.
“In this environment, we’re at the higher end of the range,” he said.
Rates have risen by 250 basis points in SA and 275 basis points in the UK so far in 2022.
Investec’s half-year results showed its wealth management business was affected by the extreme market volatility in 2022 due to the Ukraine war, rampant inflation and slowing global economic growth. Funds under management fell 7.6% to £59bn, which Investec said reflected the “decline in global markets”, though it still managed net inflows of £202m.
Net core loans grew 7.1% on an annualised basis to £31bn thanks to strong corporate lending in SA and the UK as well as increased residential mortgage extension in the latter market. Investec’s cost-to-income ratio improved to 60.5% from 64%.
The group also announced restructuring details of IEP Group, an investment holding company that was born out of the Investec private equity portfolio and in which the bank holds a roughly 47.4% stake.
While IEP holds a controlling stake in Bud Group, an industrial and services distribution company, shareholders of the two firms have approved a restructure in which certain IEP shareholders, including Investec, will exit the arrangement by way of a share buyback.
The restructuring will see certain assets transferred to a NewCo, which has entered into binding agreements to dispose of chemical assets that constitute a significant portion of IEP’s carrying value in Investec’s financial statements. Though still subject to regulatory approval, the disposal of the chemical assets is expected to be finalised in 2023, with remaining asset disposals scheduled for the next 24 months.
“Over the next 24 months or so that stake will go to zero or as close as possible to zero,” Titi said of Investec’s IEP stake.
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