Companies / 23 September 2019, 09:49am / Edward West
JOHANNESBURG - Investec's share price fell by 5.68percent to R86.46 on Friday after a trading update predicted that headline earnings per share (Heps) would fall 15percent to 18percent for the six months to the end of September.
Investec plc closed 6.81percent lower at R83.77.
The earnings decline was largely the result of costs from management actions taken to simplify and focus the business in the face of weaker investment banking performance in the UK, in line with its peers, uncertainties caused by Brexit, and a weaker corporate environment in South Africa, joint chief executive Fanie Titi said
Three analysts polled by Business Report, who declined to be named, said the decline in the share price was not unexpected, even though the market had anticipated the impact of Brexit and the weaker South African corporate environment for some time.
One analyst said the trading statement was “disappointing”, as they had wanted to see a better performance from Investec’s banking operations ahead of the demerger of the asset management business.
“The asset management business boosted these figures. Banking performed poorly. What’s it going to look like after the demerger? The banking operations have performed poorly over the last couple of years, and we wanted to see a turnaround in banking,” she said.
Another analyst said the extent of the decline in headline earnings was surprising. He said the demerger of the asset management business would give investors greater clarity on Investec’s businesses.
Management actions to simplify the business in the six months, included closing the Click and Invest operations that were part of the UK wealth management business, closing and running down of the private equity investments business in Hong Kong, selling the Irish Wealth & Investment business, and restructuring the Irish branch due to Brexit.
Titi said in a presentation that the Irish operations would not have presented the scale that Investec required post-Brexit.
These, as well as costs incurred on the proposed demerger of Investec Asset Management in the second half, were anticipated to negatively impact pre-tax interim earnings by about £42million (R781.8m), Titi said.
In other parts of the business, the South African operations were a “tale of two cities,” with the private banking business producing solid growth, while there was lower client activity in corporate banking due to weak economic activity and low business confidence.
In addition, “although we never compete on price, because we provide bespoke solutions for our clients, there is no question that there is a much more competitive environment, given the low growth environment”, Titi said.
The separate listing of Investec Asset Management was on track, with regulatory approval obtained in August. The bank and wealth business’s three-year financial targets remained intact.
For the five months to August 31, assets under management rose 6.7percent to £178.4billion, net inflows of £3.5bn were generated, core loans and advances increased 4percent to £25.9bn, and customer accounts increased 2.7percent to £32.2bn.
The UK specialist banking business expected to report adjusted operating profit “significantly” behind the prior period.
Uncertainty relating to Brexit and global trade wars had negatively impacted investment banking fees and trading income.
Interest income was impacted by additional liquidity required to pre-fund the exit of Irish deposits as a result of Brexit.
“However, our lending franchises have continued to perform as expected. The corporate lending and private banking businesses have shown traction in both target client acquisition, fee income and loan book growth, with the total UK loan book growing 4.7percent since March 31 to £11bn,” the group said.