Investec’s latest trading statement for the six months ending 30 September 2024 (1H2025) reveals a marked divergence between the performance of its South African and UK businesses. The South African division continues to show strong profit growth, while the UK operations face challenges with expected earnings declines.
Investec’s revenue growth in South Africa has been buoyed by balance sheet expansion and a favourable interest rate environment. The firm attributed the positive performance to an increase in average lending books, higher average interest rates, and an optimised funding structure. The group noted that Southern Africa’s cost of funds has improved, supporting its efforts to bolster the funding pool.
In contrast, the UK business, including its recent Rathbone Group acquisition, is expected to report a decrease in adjusted operating profit, forecasting a drop of between 5% and 11% compared to the previous period. The weaker UK performance stems from higher strategic costs and impairments, especially within the Specialist Bank, where profits are anticipated to be flat or decline by up to 9%. The group cited lower client flows in corporate foreign exchange and reduced risk management gains in the UK as contributors to this trend.
Non-interest revenue (NIR) growth in South Africa was driven by continued client acquisition and higher activity levels, particularly in the Wealth & Investment business. The group’s discretionary fund management showed positive net inflows in the prior year, adding to NIR growth. Furthermore, Investec highlighted the positive impact of its subsidiary, Capitalmind, which was consolidated in the second quarter of FY2024, contributing to the group’s overall performance.
However, trading income across the group fell behind last year’s levels due to reduced client activity in foreign exchange and interest rate trading desks, particularly in the UK. Despite this, equity trading income remained strong as global markets trended upward, providing some relief.
On the financial front, Investec anticipates an adjusted operating profit for the group between £450 million and £482 million (R10.5 billion to R11.2 billion), marking an increase from £441.4 million (R10.3 billion) in 1H2024. The Southern African business stands out with an expected adjusted operating profit at least 15% higher than the R4.8 billion posted in 1H2024. The Specialist Bank in South Africa is projected to report an 11% growth in adjusted operating profit from the prior year’s R4.6 billion.
The credit loss ratio in Southern Africa is also expected to be favourable, likely falling below the midpoint of the targeted Through-The-Cycle (TTC) range of 15 to 35 basis points (bps). However, the UK credit loss ratio is expected to be higher, nearing the upper end of the guided range of 50 to 60 bps, owing to specific impairments.
In terms of return on equity (ROE), the South African operations are expected to approach the higher end of the group’s medium-term target range of 16% to 20%. Conversely, the UK business is expected to post a return on tangible equity (ROTE) between 13% and 14%, staying within its 13% to 17% target range but notably lower than the Southern African figures.
The group’s earnings per share (EPS) performance is another area of contrast. Headline earnings per share (HEPS) are expected to range from 35.3p to 38.2p (R8.25 to R8.93), potentially either 1.4% below or 3.5% above the 36.9p (R8.63) posted in 1H2024. Meanwhile, basic EPS is projected to be between 35.2p and 38.2p, down 45% to 50% from the prior period. The previous period’s EPS was bolstered by gains from the UK Wealth & Investment combination with Rathbones, which were partially offset in the current period by costs associated with intangible assets linked to this combination.
Despite the challenging outlook for the UK business, Investec remains cautiously optimistic about the continued strength of its South African operations, driven by favourable market conditions, strategic acquisitions, and effective cost management. The group’s focus on optimising its balance sheet and expanding its client base in Southern Africa has positioned it for sustained growth in this market, offsetting the difficulties faced in the UK.
As the group navigates these divergent regional dynamics, its ability to balance profitability across its global footprint will be critical to its long-term success.
