Investec expects £550m operating profit in first half after rate cuts

Investec predicts higher profits in the first half of the year despite significant challenges facing its UK operations.

The asset management company expects to make an adjusted operating profit of £520 million to £550 million for the six months to September, compared with £487 million in the same period last year.

Also, a return on tangible equity (net profit divided by equity) of 15.5 to 16.5 percent is expected. This is within the company’s medium-term range.

Operating profit at the South African operation is expected to be at least 15 percent higher than last year, at £205.9 million, offsetting a decline of between 5 and 11 percent compared to the UK operations.

Both markets were affected by weak activity in the run-up to the general election due to take place in the summer. The UK division was also affected by problems with the revaluation of deposits.

However, trading recovered in the latter part of the period as global confidence grew that central banks would cut interest rates.

The FTSE 250 company’s revenue was boosted by higher interest rates and higher lending levels, with core lending in its specialist banking business up 6.1 per cent year-on-year to £31.7bn.

Investec’s revenue further benefited from positive net inflows into the South African wealth and investment segment.

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

Ruth Leas, CEO of Investec Bank, said: ‘We have continued to invest in growth during this period and are well positioned to benefit from the positive impact of falling interest rates on our clients’ businesses.’

Founded in 1974, Investec is listed on the London and Johannesburg stock exchanges and has over 7,400 employees worldwide.

Four years ago, the company spun off its asset management arm, which was later renamed Ninety One, following a strategic review.

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