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Investec says asset management arm demerger on track, expects full year profit to rise

“The group's performance has been supported by growth in assets under management and substantial net inflows, good loan book growth, and significantly improved performance from the UK Specialist Banking business,” Investec said
Investec
Investec's asset management arm will become a separate company to be listed in London

Investec PLC (LON:INVP) expects operating profit for the year to grow despite a weak performance in the wealth and investment business and the asset management arm it plans to spin off.

In a trading update for the year ending March 31, Investec said the demerger of Investec Asset Management remains on track, subject to regulatory and shareholder approvals.

READ: Investec to spin out asset management arm after strategic review

The group announced last September that it would separate the business and list it in London as part of a strategy to simplify operations.

In Friday’s update, Investec said it expects the asset management division to report annual results “marginally behind the prior year” and predicts a weaker performance in its wealth and investment arm.

However, growth in the bank and wealth business will lead to higher overall operating profit.

Revenue is expected to be flat on the previous year.

Slump in global equity markets 

Asset management revenue was hit by a sharp decline in global equity markets at the end of 2018 as investors exercised more caution amid concerns about Brexit, a US-China trade dispute and a slowdown in global economic growth. The company has seen some recovery in markets this year.

“Economic growth has been weak in both South Africa and the UK, the group's two core banking markets,” Investec said.

Depreciation of the South African Rand against the pound hurt overall results while the group expects “modest cost growth”.

While challenging markets hit revenues in the asset management arm, assets under management (AuM) have risen 5.2% to £109.2mln in the period since the end of March 2018 on net inflows of £6.4bn.

However, AUM in the wealth and investment division fell 4% to £53.8bn, with net inflows of £500mln.

Specialist banking unit boosted by loan book growth

The specialist banking division is forecast to deliver an increase in net interest income for the year, driven by loan book growth in the UK and South Africa.

Between March 31 last year and February 29 this year, core loans and advances fell by 0.9% to £24.9bn but customer accounts grew 1.1% to £31.3mln, both on a reported basis.

The loans to customer deposits ratio at February 28 was 78.2%, down from 79.6% on March 31.

The common equity tier 1 capital ratios for the year are expected to remain in line with the group's target of 10%.

“The group's performance has been supported by growth in assets under management and substantial net inflows, good loan book growth, and significantly improved performance from the UK Specialist Banking business,” Investec said.

“The group is committed to a strategy of simplification, focus, and growth with discipline.“

Shares edged up 0.8% to 474.80p in late morning trading.

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