Investec revenue tops £2bn
Life insurance products planned for the local market
Investec plc’s share price climbed 1.7% on Thursday to R104.79, its highest in 2017, as the group reported full-year revenue above £2bn for the first time. It also announced plans to offer life insurance products to South Africans later in 2017.
Investec Life would offer life insurance only to Investec customers, with the possibility of adding products such as critical illness and disability cover in future, group CEO Stephen Koseff said on Wednesday.
These products, which would be accessible online or through an adviser, would be adaptable to individual needs, said Investec Bank SA CEO Richard Wainwright.
The bank had hired Michael Goemans, the previous finance chief of Old Mutual SA, to head the business, he said.
For the year to March 2017, Investec grew operating income 17.7% to £2.2bn, helped by an 11% appreciation of the average rand-sterling exchange rate.
THE BROADER GROUP HAS BUILT POWERFUL BRANDS AND WE FEEL THAT THESE BUSINESSES DESERVE PREMIUM RATINGS
Operating profit increased 8% on a currency-neutral basis to £599.1m, supported by strong profit growth in its specialist bank, which contributes more than 50% to group earnings.
Despite suffering outflows of £600m, Investec Asset Management posted record operating profit, boosted by currency and market movements.
Koseff said Investec was focusing on growing its UK private bank. The bank had initially targeted young professionals but decided this was not viable because of the availability of low-cost mortgage and banking products, he said. It would now focus on wealthy individuals and entrepreneurs.
Investec has been trying for some years to crack the UK private banking market, where banks such as HSBC, Barclays and Coutts are entrenched.
Breaking into this market was a medium-term growth story and would be key in determining whether to buy the stock or not, said Harry Botha, an analyst at Avior Capital Markets.
Investec had a strong wealth business in the UK, which could eventually help it cross-sell banking products, he said.
Investec plc has four buy ratings and four hold ratings among eight analysts, Bloomberg data show.
"The Investec investment thesis has largely hinged on the UK specialist bank gaining sufficient scale to generate return on equity that, at the very least, sustainably matches its cost of equity," said Liam Hechter, an analyst at Anchor Capital.
The UK bank was generating return on equity of 11%, excluding the legacy book and non-core businesses, Hechter said.
"If this can be sustained, we would expect to see a rerating of Investec plc. The broader group has built powerful brands in asset and wealth management and we feel that these businesses deserve premium ratings."
Investec plc has considerably outperformed peers in the JSE banks index in 2017, climbing 15.5% relative to the index’s 7% decline. The banks index increased 27% in 2016.