Investec earnings outlook boosted by South Africa, weighed by UK

Investec has reiterated its full-year financial targets, buoyed by a strong performance in its South African operations that is compensating for a weaker showing in the UK. The Anglo-South African bank and wealth manager expects its adjusted earnings per share for the first half of the year to be between 41.7p and 43.3p, representing a 3% to 7% increase compared to the same period last year. Adjusted operating profit is projected to fall between £479.2 million and £496.2 million, up from £468.1 million a year prior.

The group's Southern African division is anticipated to boost adjusted operating profit by as much as 6% in rand terms, and by up to 14% when converted to pounds. In contrast, the UK business, which includes a stake in wealth manager Rathbones, is expected to see its adjusted operating profit decline by 2% to 6% year-on-year. Investec attributed the UK's subdued performance to falling interest rates, which compress the income generated from the spread between lending rates and deposit rates, a phenomenon known as the endowment effect, as well as increased pricing competition that has narrowed lending margins.

Despite these challenges, core loans increased to £37 billion by the end of August, a 6.3% rise on an annualized basis after accounting for currency fluctuations, with growth observed in both regions. Customer deposits climbed to £46 billion. Funds under management in the Southern African wealth business saw a significant jump of almost 14% since March, reaching £30.7 billion, driven by robust client inflows. The bank anticipates its credit loss ratio to remain within its normal operational range, indicating sound overall lending quality. Return on equity is forecast to be between 13.1% and 13.5%, with Investec reaffirming its commitment to achieving returns at the higher end of its target range by 2030. The bank cautioned that global uncertainties, particularly the conflict in the Middle East, could impact sentiment, trade, inflation, and growth, potentially affecting its guidance.