Investec Group CEO Fani Titi.

• Investec’s share price moved higher after the group released a half-year profit update.
• The group benefitted from higher interest income thanks to higher interest rates.
• But bad debts also increased – although its SA operations performed slightly better than those in the UK.  
• For more financial news, go to the News24 Business front page.

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Investec’s share price gained more than a percent on Friday morning after the niche private bank and wealth manager confirmed half-year profit gains.

Rising interest rates boosted its net interest income in the six months to end-September, while it also grew its client base and lending in South Africa and the UK, the group added.

Investec expects basic earnings per share of between 67.2p and 69.2p for the six months to end-September – between 33% and 37% ahead of the corresponding period in the prior year. Investec, which is dual-listed in Johannesburg and London, reports its financial results in pounds.

Headline earnings per share, a profit measure that excludes the impact of once-off items, will be 6% to 12% higher.

Investec Group CEO Fani Titi said the group’s performance was underpinned by the continued success in acquiring clients and lending growth.

Like other banks, Investec saw its bad debts increase following aggressive increase rate hikes.

It expects its credit loss ratio to move closer to the upper end of the through-the-cycle (TTC) range of 25 to 35 basis points, with its SA business performing slightly better on this front than its UK operations.

However, it also saw a positive earnings impact of rising interest rates which supported higher net interest income from a growing lending book.

Banks usually get a profit boost from higher interest rates. Their massive cash balances earn higher interest, and their profit margins on the interest earned from loans also improve.

The group said the 19% decline in the average rand-sterling exchange rate in the five months to end-August resulted in a significant difference between its reported performance and its results which exclude the impact of currencies.

Comparing its performance this year to last year was also affected by the financial effects of various corporate actions.

This included a deal with the Rathbones Group that saw Investec becoming the largest shareholder in the UK’s biggest discretionary wealth manager.

Rathbones bought the UK wealth management business of Investec in an all-share deal valued at £839 million, which gave Investec a 41% stake in the combined entity.

Click here for Investec’s share price and other data

In addition, Investec sold some of its management companies to Investec Property Fund (IPF), which is now known as Burstone Group Limited, and restructured its private equity unit as part of an orderly exit from that business. It also completed a R6.7 billion share buy-back as to optimise the use of capital in South Africa.

Investec expects to report adjusted operating profit before tax of between £428.7 million and £449.6 million in the six months to end-September, up from £405 million in the previous interim period.

The adjusted operating profit of the group’s UK business is expected to be at least 25% higher than the £174.4 million reported in the prior interim period. The southern African business’ adjusted operating profit is expected to increase by at least 5% on prior period when measured in rands.

The group’s cost-to-income ratio improved as revenue growth outpaced the rise in costs and is expected to be below 60%.

Investec is scheduled to release its interim results for the six months to end-September on 16 November.

By late morning, its share price on the JSE was 1% higher at R108.73. Most other banking shares were flat or marginally lower.

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