Investec comes under pressure in South Africa

Investec saw its customer deposits from South Africa fall by 11.5% and expects to report far lower interim earnings than in 2023.

Investec released a trading update on Friday for the first half of its 2025 financial year, which covers the six months through September 2024.

Investec said the revenue momentum from its diversified client franchises continued in this period. 

“The initial months of this period were characterised by low levels of activity ahead of the national elections in both our anchor geographies,” the company said. 

“The latter part of this period has seen a more positive economic outlook reflecting increasing certainty on global interest rate cuts.”

For the six months through 30 September 2024, Investec expects its pre-provision adjusted operating profit to be between £520 million and £550 million, up 6.7% to 12.9% from the comparative period.

The company’s headline earnings per share are expected to be between 35.3 pence and 38.2 pence, either down 1.4% or up 3.5% from the prior period.

Basic earnings per share are expected to fall between 35.2 pence and 38.2 pence – 45.0% to 50.0% behind the prior period. 

Investec explained that this is because the prior period was positively impacted by the net gain from the implementation of the UK Wealth & Investment combination with Rathbones.

This was partially offset by the effects of Burstone’s deconsolidation and the amortisation of intangible assets associated with the Rathbones combination in the first half of its 2025 financial year.

The company’s credit loss ratio remained around the upper end of the through-the-cycle (TTC) range of 25 basis points to 45 basis points. 

“The overall credit quality remained strong, in line with the position at FY2024, with no evidence of trend deterioration,” the company said.

Its cost to income ratio is expected to be below the 53.3% reported in the prior period, benefitting from revenue growing ahead of costs.

Investec’s adjusted operating profit before tax is projected to fall between £450 million and £482 million, compared to the £441.4 million reported for the first half of its 2024 financial year.

In particular, the company expects its Southern African business’ adjusted operating profit to be at least 15.0% ahead of the prior period in rands.

Investec said its revenue growth was supported by balance sheet growth, increasing contribution from our various growth initiatives as well as the elevated interest rate environment.

In addition, its net interest income benefitted from the growth in average lending books and higher average interest rates, which was partly offset by the effects of deposit repricing in the UK. 

Southern Africa also benefitted from the lower cost of funds as Investec continued to implement its strategies to optimise the funding pool. 

Non-interest revenue (NIR) growth was underpinned by continued client acquisition and higher activity levels. 

“The positive net inflows into SA Wealth & Investment discretionary FUM in the prior year and the current period contributed to the NIR growth,” the company said. 

In the UK, trading income was lower than in the prior period due to reduced client flows in corporate foreign exchange and interest rate trading desks.

Lower risk management gains in hedging the remaining and significantly reduced financial products run-down book in the UK also played a role. 

For the five-month period ended 31 August 2024, Investec’s Specialist Banking division saw core loans increase by 6.1% annualised to £31.7 billion and increased by 3.1% in constant currency terms.

This was driven by private client lending in both geographies and corporate client lending in the UK. 

However, given the high interest rate environment, the growth in lending turnover was partially offset by the elevated repayments. 

Customer deposits remained flat at £39.5 billion on reported basis and decreased by 2.9% in neutral currency annualised.

This was largely due to a decline in customer deposits from South Africa, which declined by 5.2% annualised and by 11.5% in constant currency terms.

Regardless, Invetec’s funds under management (FUM) in Southern Africa increased by 10.7% to £23.2 billion. The company said net discretionary inflows of R8.5 billion were augmented by net inflows of R1.3 billion in non-discretionary FUM.

The Rathbones Group, a 41.25% held Investec associate, reported funds under management and administration of £108.9 billion at 30 June 2024.