Release Date: November 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Investec Ltd (ITCFY, Financial) reported solid results with adjusted earnings per share of 39.5p, at the upper end of their guidance range.
- The company saw double-digit growth in funds under management, reaching £23.4 billion, with significant inflows of 10 billion rand.
- Loan books increased by over 5% to £31.7 billion, and deposits grew by just under 5% annualized to £40.4 billion.
- The board approved a dividend increase of 6.5% to 16.5p, reflecting strong capital generation.
- Investec Ltd (ITCFY) achieved a return on equity of 13.9%, within their upgraded through-the-cycle range of 13% to 17%.
Negative Points
- The UK business saw a decline in adjusted operating profit by 5.4%, with the specialist bank down by 2.4%.
- The credit loss ratio increased to 42 basis points, at the higher end of their through-the-cycle range.
- Group costs increased significantly, with South Africa up 14% and the UK up 27%, raising concerns about cost management.
- The UK credit loss ratio was elevated due to higher interest rates impacting the mid-market segment.
- The company faces challenges from geopolitical risks and changes in government policies, particularly in the UK.
Q & A Highlights
Q: Can you explain how the 11% pre-provision operating profit growth translates to only a 2% adjusted EPS growth?
A: The growth in revenue was 5.6%, and costs grew by 5.8%, leading to opening jaws. The increased credit loss ratio and impairment charge affected the overall 8% increase in adjusted operating profit. Additionally, the tax charge remained similar, but the UK absorbed an increased tax rate. The issuance of new additional tier one capital instruments at a higher cost also influenced the EPS growth. - Nishlan Samujh, Group Finance Director
Q: With a 14.8% common equity tier one ratio in South Africa, how are you thinking about capital given your strong generation?
A: We are preparing for Basel 3.1, which will affect our capital ratio by about 1.2 to 1.3%. Despite this, we continue to generate surplus capital in a low-growth environment. As growth picks up, we will absorb more capital, and if necessary, we will consider other actions. - Nishlan Samujh, Group Finance Director
Q: What are your plans regarding the high group costs, with SA up 14% and UK up 27%?
A: There are stranded costs of about 2.5 million in the UK due to the combination with Rathbones. We are managing these costs actively. Additionally, we have committed to significant sponsorships to enhance our brand presence. We are monitoring group costs closely. - Fani Titi, CEO
Q: How do you quantify the synergies from the Rathbones deal, and what risks could lead to negative earnings surprises?
A: We are ahead of schedule in achieving synergies, with 25.5 million pounds realized versus the expected 15 million. The integration is on track, and we expect a positive impact beyond year three. However, we cannot comment in detail on Rathbones' operations as we do not control them. - Fani Titi, CEO
Q: Given the strong capital position, would you consider buying back shares to limit dilution?
A: Last year, we executed a significant buyback of shares. The increase in the weighted average number of shares is due to the maturity of certain options in our share schemes, not new issuances. - Nishlan Samujh, Group Finance Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
