Investec forecasts first-half operating profit of £550m on boost from interest rate cuts

Investec expects higher first-half profits despite major challenges at its UK business.

The wealth management firm expects to achieve adjusted operating profit of between £520m and £550m for the six months to September, compared with £487m in the same period last year.

It also anticipates a return on tangible equity (net earnings divided by shareholders’ equity) of 15.5 percent to 16.5 percent, which is within the company’s medium-term range.

Operating profit at its South African subsidiary is forecast to be at least 15 per cent higher than a year earlier at £205.9m, offsetting a 5-11 per cent decline at its UK operation.

Both markets were hit by subdued activity ahead of the general election over the summer, while their UK division was also hit by deposit pricing issues.

However, trading recovered during the latter part of the period amid growing global certainty about central banks cutting interest rates.

The FTSE 250 company’s turnover was boosted by elevated interest rates and higher lending levels, with core lending in its specialist banking business rising 6.1 per cent on an annualised basis to £31.7bn.

Investec’s revenues have further benefited from positive net inflows into its South African Wealth and Discretionary Investment segment.

Although the Johannesburg-based group’s costs rose due to inflationary pressures and investment in technology, strong sales growth helped its cost-income ratio improve to 53.5 percent.

Ruth Leas, CEO of Investec Bank, said: “We have continued to invest in growth over the period and are well positioned to benefit as falling interest rates begin to positively impact client activity levels.”

Founded in 1974, Investec is listed on the London and Johannesburg Stock Exchanges and employs more than 7,400 people worldwide.

Four years ago, the company spun off its asset management business (later renamed Ninety One) following a strategic review.

Investec shares fell 4.7 percent to 563.5 pence by late afternoon on Friday, though they are still up around 23 percent over the past year.