Investec PLC (LSE:INVP) expects profit for the first half to almost double due to strong revenue growth, increased client activity and lower costs. The bank and wealth management company said profits from the UK are set to jump 125% with a 50% hike in its Southern African business.
Adjusted operating profit before tax for the six months to 30 September 2021 will come in between £265mln-£293mln, compared with £142.5mln in the same period last year. Adjusted earnings per share (EPS) was flagged between 21.5p and 24p, up from 11.2p.
Adjusted operating profit from group investments is expected to be ahead of last year as investee companies' profitability recovered given the improving economic environment. Group costs are also set to fall.
The group said it is well capitalised and has strong liquidity.
Looking ahead to the full year to end-March 2022, Investec now expects to report adjusted EPS above the upper end of the 36p-41p range guided in May 2021.
Trading in the five months to end-August was substantially ahead of the comparative period last year, the company added. "This recovery in performance underscores the resilience of our client franchises,” a statement read.
In the five months to August, revenue was boosted by increased client activity and lower funding costs, with risk management and risk reduction costs associated with the UK structured products book “immaterial”, Investec said.
Expected Credit Losses (ECL) charges were also lower, aided by limited specific impairments and certain recoveries. The group said it has retained Coronavirus COVID-19 related overlays to account for the uncertainty that remains in the economic environment.
Operating costs in the first five months increased in line with activity and revenue levels, while efficiency ratios improved as revenue increased ahead of costs.
The Wealth & Investment business grew funds under management (FUM) by 9.9% to £63.8bn at end-August from £58bn at end-March, supported by net inflows of £1.4bn, favourable market movements and investment performance. Operating margin was higher in the UK, while flat in SA.
In the Southern African business, FUM increased 9.5% to R364.5bn, with net inflows of R16.7bn. UK FUM grew 9.0% to £45.4bn, with net inflows of £0.6bn.
Within Specialist Banking, core loans grew 6.5% to £28.2bn in the five months from March to August. The UK experienced increased demand for corporate credit across a number of portfolios, while Southern Africa corporate credit demand remained largely muted, the group said.
Net interest income (NII) benefitted from higher average lending books and lower cost of funding as liabilities repriced.