South Africa a better bet than the UK for Investec

Investec’s South African business is showing better profit growth than the UK, with the group expecting a big drop in earnings.

In a trading statement for the six months ended 30 September 2024 (1H2025), Investec said that revenue growth was supported by balance sheet growth, increasing contributions from its various growth initiatives, and the elevated interest rate environment.

Net interest income also benefitted from the growth in average lending books and higher average interest rates, partly offset by the effects of deposit repricing in the UK.

The lower cost of funds also boosted Southern Africa as the group continued to implement its strategies to optimise its funding pool.

The group added that continued client acquisition and higher activity levels underpinned non-interest revenue growth, with positive net inflows into SA Wealth & Investment discretionary Fund Under Management in the prior year, and the current period contributed to the NIR growth.

“Trading income was behind the prior period due to reduced client flows in corporate foreign exchange and interest rate trading desks as well as lower risk management gains in hedging the remaining and significantly reduced financial products run down the book in the UK,” said the group.

“Equity trading income arising from client flow was strong as markets trended upwards. The consolidation of Capitalmind also supported NIR growth as it became a group subsidiary in the second quarter of FY2024. Investment income contributed to the revenue growth, given the improving global markets backdrop.”

For the period, the group said that adjusted operating profit before will be between £450 million and £482 million (R10.5 billion to R11.2 billion), up from £441.4 million (R10.3 billion) in 1H2024

Southern African business adjusted operating profit is expected to be at least 15.0% ahead of the R4.8 billion seen in 1H2024.

Special Bank adjusted operating profit is expected to be at least 11.0% ahead of the prior period (1H2024: R4,616 million).

The credit loss ratio is also expected to be below the midpoint of the TTC range of 15bps to 35bps, with expected credit losses (ECLs) reflecting lower recovers from previously written-off exposures relative to prior period.

The ROE is also expected to be closer to the upper end of the 16.0% to 20.0% medium-term target range.

On the other hand, the UK businesses, including Rathbone Group, expect an adjusted operating profit of 5% to 11% lower than the prior period’s £235.4 million (R5.5 billion).

Specialist Bank adjusted operating profit is expected to be flat to 9.0% lower following a major increase
in the prior period (1H2024: £207.4 million).

The group’s UK business also expects to report a credit loss ratio at the upper end of the guided range of 50bps to 60bps, driven by certain specific impairments.

ROTE is expected to be between 13.0% to 14.0%, within the group’s medium-term target range of 13.0% to 17.0%.

Financials drop

Overall, headline earnings per share are expected to be between 35.3p and 38.2p (R8.25 to R8.93), which could be 1.4% behind or 3.5% ahead of the prior period 36.9p (R8.63).

The group said this includes the cost of executing strategic actions and the amortisation of intangible assets associated with the Rathbones combination in the current period.

Basic earnings per share between 35.2p and 38.2p (R8.23 to R8.92) will be 45% to 50% behind the prior period.

“The prior period was positively impacted by the net gain from the implementation of the UK Wealth & Investment combination with Rathbones, which was partially offset by the effects of Burstone’s deconsolidation and the amortisation of intangible assets associated with the Rathbones combination in the current period,” said the group.

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