Investec reports strong second half earnings – but cautions over emerging third wave in South Africa
Financial services firm Investec on Friday (21 May) reported financial results for the year ended March 2021, showing a strong earnings recovery in the second half of the year.
As a result the group’s board has proposed a final dividend of 7.5 pence, resulting in a total dividend of 13 pence for FY2021 with a net payout ratio of 45%.
Adjusted earnings per share from continuing operations for FY2021 of 28.9 pence was 14.7% behind the prior year, with second half earnings 58.1% ahead of the first half, noted group chief executive, Fani Titi.
Tangible net asset value per share increased by 12.7% to 425.7 pence.
“The 2021 financial year was a tale of two halves. First half performance was characterised by difficult and volatile market and economic conditions attributable primarily to Covid-19.
“The second half showed strong earnings recovery, supported by our resilient client base, a rebound in economic activity and a greater sense of optimism spurred on by global vaccination campaigns. We carry this momentum into the 2022 financial year,” said Titi.
“We are delighted to report record funds under management and operating profit in our Wealth businesses. The South African Specialist Bank produced an excellent performance in a difficult environment reporting flat profits in rands.
“This performance highlights the quality of our client franchises and our commitment to outstanding client service. The UK Specialist Bank client franchises performed strongly showing continued traction in our client acquisition strategy across the business, reporting loan book growth of 8.7%.”
Investec said that the investment in its UK Private Banking business is bearing fruit and performing ahead of expectations.
Southern Africa business
For Southern Africa Wealth & Investment, Investec reported adjusted operating profit up 10.6%. FUM increased by 32% to R333 billion (FY2020: of R252.4 billion), with good net discretionary inflows of R7.6 billion (non-discretionary outflows of R8.5 billion).
Revenue grew by 7.8%, supported by increased levels of trading activity (given market volatility), higher average discretionary and annuity FUM and market performance, it said.
Operating costs increased by 6.6% driven by inflationary increases and higher information technology spend. The business achieved an operating margin of 31.2% (2020: 30.4%), Investec said.
Adjusted operating profit for the Southern African Specialist Banking business decreased by 1.2%. “We have seen good momentum since December 2020 with stronger activity levels, growth in lending books, good client acquisition and improved point-of-sale activity from private clients as well as increased corporate trading activity,” Investec said.
“The positive impact from higher trading income, lower year on year fair value markdowns on investments and a lower ECL charge was offset by the endowment effect from interest rate cuts and lower overall fee income due to reduced client activity in the first half.”
Net interest income decreased by 4.2%, driven primarily by the 300bps rate cuts since January 2020. The increase in trading income was negatively impacted by lower overall lending and transactional activity compared to the prior year and reduced investment income due to negative fair value adjustments, lower realisations and dividend income given the prevailing economic backdrop, the specialist banking group said.
The private clients loan book grew by 2.2%, while the corporate lending book declined year on year due to higher repayments and lower net new originations.
Looking ahead, Investec said that it remains encouraged by the momentum across the business.
“The short-term outlook is dependent on progress in containing the pandemic and the extent of economic recovery in the geographies in which we operate. While the vaccine roll-out programmes in the UK and other advanced economies are pleasing, the slow progress in South Africa leaves the country vulnerable to the emerging third wave,” it said.
Should the economic recovery currently underway persist throughout FY2022, Investec said it expects the revenue momentum experienced in the second half to continue; supported by growth in client activity and recovery of non-interest income revenue streams which were negatively impacted by Covid-19 in 1H2021.
The group said it remains committed to achieving a 12% to 16% ROE in the medium-term.
Read: Business Talk – In conversation with Investec Bank’s Richard Wainwright
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