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Investec - Pre-close briefing

21/3/2014

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I wrote about this one back on 7th February 2014 as a contrarian value stock when it was trading at around 400 pence. So a brief update is in order as they put out a pre close briefing late yesterday morning. As discussed last time and as expected the most significant feature of the update was the fact that overall group results were negatively impacted by the depreciation of the Rand: Pounds Sterling exchange rate of approximately 20% over the period. Despite this against the backdrop of improved operating results and the depreciation of the Rand, operating profit is expected to be marginally ahead of the prior year in sterling - an increase of approximately 28% in Rands. 

This underlying increase was driven by Wealth & Investment where results are expected to increase substantially and Asset Management which is expected to report results moderately ahead of the prior year. Both divisions benefited from higher levels of average funds under management supported by net inflows of £1.1 billion and £2.5 billion, respectively.

The South African Specialist Banking business is also expected to report results substantially ahead of the prior year in Rands, whilst the UK Specialist Banking business is also expected to report results well ahead of the prior year as a result of a significant decline in impairments. As reported previously, the Australian business has been impacted by strategic restructuring. Consequently, the global Specialist Banking business is expected to report results only marginally ahead of the prior year.

Other points of note were that they expect revenues to be slightly down on the year (in line with forecasts) and they highlighted that 72% of their operating income is expected to be recurring in nature this year compared to 69% last year. They also flagged impairments down by 35% and lower costs thanks to the rand. Overall they expected earnings to be up by 22 to 27% in rand or 0 to 7% in sterling which looks like it could mean around 35 pence and I would expect a small dividend increase to about 19 pence from 18 pence, up 5.5%. So nothing surprising in this update.

The shares themselves are up about 50 pence or 12.5% since I last wrote, in  an unchanged market, so not too bad. They appear to be at the top of their recent trading range and about half way to the 500 pence target of their 12 month high that I suggested last time (see chart at the end). So it is tempting to lock in a quick profit, but the rand has been recovering in the short term and they are now on around 13x with a 4.2% yield for the year they are about to report with a final dividend to come. So I'll probably hold on for now, but with an eye on market developments as this one is obviously quite geared into those and IPO's as I discussed last time.


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