Investec expects modest profit growth despite economic challenges

Financial services firm Investec expects a modest increase in operating profit for the year ending March 31, 2025, despite a tough economic climate, but headline earnings per share (Heps) could fall by up to 8% due to non-recurring gains from the prior year.

In a pre-close trading update for the 11 months to February 28, 2025, Investec projected Heps between 67.2 pence (R15.66) and 73.5p, compared with 72.9p in 2024, reflecting a potential decline of 8% or a slight rise of 1%. Adjusted operating profit before tax is forecast to range from £888 million to £956m, up from £884.5m last year, buoyed by resilient client franchises.

“We are pleased with the performance of our client franchises, which continued to report progress against our strategic priorities and support revenue growth in a challenging operating environment,” CEO Fani Titi said. He said the group's diversified business model and strong balance sheet allows it to continue supporting its clients and achieve results within its financial target ranges.

Revenue growth was supported by continued client acquisition, strong net inflows in discretionary and annuity funds under management in the current and prior periods.

Investec said net interest income benefitted from the growth in average lending books and lower cost of funds in Southern Africa in line with Investec's strategy to optimise the funding pool, though UK deposit repricing tempered gains.

Non-interest revenue rose with strong fee income from banking and wealth management, bolstered by market liquidity and investment gains, however, this was partially offset by lower risk management gains in hedging the "remaining and significantly" reduced financial products run down book in the UK.

Core loans grew 4.7% annualised to £32.2 billion, while customer deposits rose 4.8% to £41.2bn.

The cost-to-income ratio is set to dip below 2024’s 53.8%, with revenue outpacing costs despite investments in staff and technology. Credit quality held firm, with the credit loss ratio expected at 25 to 45 basis points, within the target range.

In Southern Africa, Investec said adjusted operating profit is projected to grow at least 5% in rands from R10.097bn (£429 million), targeting a return on equity of 17.7% to 18.7%. The UK business, including a 41.25% stake in Rathbones, anticipates profit between 4% below and 4% above last year’s £455.5m, with Rathbones reporting £109.2bn in funds under management.

"The Group maintained strong capital and liquidity levels and is well positioned to continue supporting our clients navigate the current environment and execute on our strategic priorities," Investec said.

Investec’s shares closed 2.73% lower at R117.46 on the JSE on Friday, reflecting market reaction to the mixed outlook. Full-year results are due on May 22.

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