Investec expects its annual earnings to leap up to 27% and kept its return on equity (ROE) guidance unchanged, in spite of the macroeconomy.
Its share price in intraday rose 2.8% to R102.15 on the positive outlook.
The bank, which services higher-income private clients in South Africa, said yesterday in a pre-close trading update for the year ending 31 March 2023 that it forecast adjusted earnings per share between 66p (R14.66) and 70p, 20% to 27% ahead of prior year.
“The group experienced strong performance, notwithstanding the complex macroeconomic backdrop that prevailed in the period. Our diversified business model and strong balance sheet allowed us to support our clients amidst this evolving environment,” it said.
Continued execution of its strategy had enabled the group to achieve its financial year 2024 targets, the JSE- and London-listed bank and financial services group said .
Basic earnings per share were likely to rise between 83p and 87p, 60% to 67% ahead of prior year, positively impacted by the gain on the implementation of the Ninety One distribution in May 2022, while its headline earnings per share between 65p and 69p, was expected to be 22% to 29% ahead of prior period.
Adjusted operating profit before tax was likely to between £782.8 million (R17.3 billion) and £833.6m.
The increase in pre-provision adjusted operating profit was underpinned by continued client acquisition, positive effects from rising global interest rates and higher average advances, it said.
Its ROE was likely to be within the group's financial year 2024 target range of 12% to 16%, in line with guidance given in November 2022.
Its UK business' adjusted operating profit was likely to be at least 15% higher than prior year.
In the UK, the revenue growth experienced in the first half has continued while the effects of weakening macro backdrop negatively impacted equity capital markets (ECM) activity levels.
Meanwhile, its Southern African business adjusted operating profit was likely to be at least 10% ahead of the prior year in rand.
In Southern Africa, Investec experienced positive revenue momentum in the second half.
The group said net interest income benefited from higher average lending books and higher interest margin given the rising interest rate environment.
However, non-interest revenue was negatively impacted by lower fees in the wealth and investment businesses and UK ECM given market weakness, the distribution of 15% shareholding in Ninety One and lower investment income; this was partly offset by a positive contribution from trading income.
Fixed operating expenditure increased in line with the first half, driven by continued investment in people and technology, and post-pandemic normalisation of certain business expenses. Variable remuneration grew in line with profitability.
It flagged that the cost to income ratio improved as revenue grew faster than costs and was expected to be in line with first half 2023 levels and within Investec’s full year 2024 targets.
In line with the guidance provided in November 2022, the credit loss ratio continued to normalise towards the through-the-cycle (TTC) range and was expected to be in the bottom half of the Group's TTC range of 25 basis points (bps) to 35bps.
Meanwhile, for the 11 months ended February 28, 2023, Investec said the Wealth & Investment business funds under management declined by 3.7% to £61bn. This was driven by market volatility which was partly offset by net inflows of £396m.
Investec said it was well capitalised with strong liquidity, above board approved minimums, and was well positioned to continue to support its clients and pursue growth opportunities in line with its strategic objectives.
Investec said it had made significant progress on its capital optimisation strategy.
To date, it had acquired 52 million shares, or an equivalent of 5.2% of the shares outstanding, before the November 2022 announcement a R7 billion share buyback to address its surplus capital position in South Africa and returned R5.4bn to shareholders through this programme.
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