AT first glance, Investec has missed forecasts with full-year operating profit of £434m: analysts had been hoping for something nearer the £450m mark. But the South African bank and wealth manager still gained the most in two-months during trading yesterday. A candidate for demotion from the FTSE100, thanks to the entry of mining giant Glencore, it is hoping that Invensys (virtually its namesake) gets the wooden spoon instead.
Investors were impressed not by the below-consensus headline figure, but by the improving quality of its earnings. The bank is moving away from traditional lending to conserve capital, while investing heavily in asset and wealth management. On yesterday’s numbers, it appears the strategy is paying off.
With the exception of the private bank, which posted a £91m loss due to an 11 per cent increase in impairments, all divisions are performing well. The Asset Management arm and Wealth and Investment division, which both increased profits by over 50 per cent, are worth pointing out. These two divisions now account for 39 per cent of group operating profits, against 19 per cent in 2008. Obviously, the businesses aren’t capital intensive because the bank is using third party funds.
Analysts at Numis reckon that profits at the private bank will return to pre-crisis levels as the recovery gathers pace. With a loan book that is now 48 per cent larger, Numis sees group operating profit jumping by 59 per cent. That would imply a price to earnings ratio of less than seven times, suggesting the shares still have some way to go.