Investec's share price declined 2.8 percent in intraday trade to a low of R86.84 by midday as the Brexit row raged on. File Photo: IOL

JOHANNESBURG – Brexit uncertainty yesterday spilt over to dent the share price of Investec by nearly 3 percent as the asset manager and banker delivered its interim results.

The group’s share price declined 2.8 percent in intraday trade to a low of R86.84 by midday as the Brexit row raged on, but recovered to R89.58 as perception improved.

The share closed 3.12 percent lower at R89.13 on the JSE on Thursday.

Renier de Bruyn, an analyst at Sanlam Private Wealth said the negative share price reaction of Investec was likely as a result of the news relating to Brexit and not Investec’s financial results, which were actually quite decent.

“Some of the major UK listed banks, such as Barclays and RBS suffered heavy declines today (yesterday), following news of the resignation of the Brexit cabinet minister,” he said.

For the six months to September, the group reported that operating profit increased 14.2 percent to £359.3 million (R6.71 billion) compared to £314.6m in the same period in 2017,  an increase of 17.6 percent on a currency neutral basis.

Overall the group’s results had been negatively impacted by the depreciation of the average rand: pounds sterling exchange rate of  4.1 percent over the period. 

Investec said the combined South African businesses reported an operating profit of 5 percent ahead of the prior period (in rands), while the combined UK and other businesses posted a 40.2 percent increase in operating profit in pounds sterling.

Challenging operating environment

Investec said the performance was also affected by a challenging operating environment, with rising US interest rates, the threat of trade wars, concerns over global growth prospects, weak economic growth in South Africa and Brexit-related uncertainty in the UK.

At an earnings presentation in London yesterday  Investec’s joint chief executive, Fani Titi, said that the group was hunting for new revenue streams to revive its South African banking business.

Titi said the lender was expanding its business-banking offering and investing in digital platforms to drive up client numbers in a bid to stem the impact of the nation’s challenging environment,

“This is a resilient business, we have a premier position in the South African market and our clients are very resilient as well, so we have been investing in new areas of growth,” he said.

Dividend

Investec’s board declared a dividend of 11 pence per ordinary share, up from 10.5p last year, resulting in a dividend cover based on the group’s adjusted earnings per share before goodwill and non-operating items of 2.6 times, consistent with the group’s dividend policy.

36One Investment analyst, Tumi Loate, said the specialist banking division in the UK was likely to perform well in the next six months, relative to last year. 

“Weak economic growth in the South African market with the retail banking industry becoming more competitive as other new banks are launched.

"Brexit uncertainty could potentially have an impact on the property market in the UK, which in turn, could impact mortgages and expected credit losses,” Loate said, adding that the legacy portfolio would not impact the second half and with the legacy book written off, management is able to focus on expansion and client acquisition. 

Waldo du Plessis, an asset manager at Nitrogen Fund Managers, said the next set of results would be dependent on the ability of the bank to gain a larger share of wallet from their current client base, whilst containing costs.

He said line growth had been hard to achieve across all sectors, given the state of the economy, meaning bottom line outperformance had come from cost containment and exploring operational efficiencies.

“Investec is placing some emphasis on investing further in digital platforms. This, they believe, should enhance clients, this is a longer term initiative – the operating environment for the next 6 to 18 months will remain challenging,” he said.

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