Investec eyes global expansion in resources sector

INVESTEC was searching for organic growth opportunities in the resources sector, the specialist bank said yesterday.

Group chief executive Stephen Koseff said the company had created a global resources team that would look at such opportunities in Africa, Canada and India, among other places. He rated Africa as a “very attractive destination”.

“When you speak about resources, you obviously talk Africa but we have our global team looking at opportunities across all geographies,” he said.

Koseff said if the world economy continued moving on a stable trend, 2012 would be a good year for Investec.

The growth of the firm’s funds under management by 15 percent in the second half of its financial year and the way it had contained costs showed that it was well on its way to reshaping in the wake of the financial crisis.

The company expected its operating profit to decline by up to 16 percent in the year that closes at the end of this month. It expected adjusted earnings a share and headline earnings a share to be 22 percent to 27 percent lower than in the previous year.

Operating income would fall by 2 percent to 3 percent as a result of a substantial drop in income from principal transactions. Recurring income as a percentage of total operating income is forecast to increase to about 68 percent from 62 percent last year.

Investec said while volatility and decreased activity characterised the second half of its financial year, its specialist banking businesses should benefit from growth in both margin and fee income.

The asset management and wealth management businesses continued to see growth in net inflows as well as in the proportion of revenues derived from its non-lending activities.

The UK business was expected to report operating profit marginally ahead of the previous year. However, the South African businesses would remain fairly flat while the Australian business was expected to report an operating loss.

Koseff said although earnings of principal activities had been affected by the low activity levels, the bank had a lot of cash. But he told shareholders that Investec had reduced its return on equity (ROE) targets.

He said ROE had been reduced to between 12 percent and 16 percent over a rolling five-year period from an initial target of more than 20 percent over the medium to long term.

“Banks will battle to get the kind of ROES they had experienced in the past because they have to sit with more capital.”

The firm would spend about £30 million (R360m) on the integration of its recently acquired financial services business, Evolution, in the UK.

Jean Pierre Verster, an analyst at 36One Asset Management, said Investec’s update regarding the banking operations was disappointing. The Kensington business continued to be a drag, with impairments that would increase sharply after the adoption of a new provisioning methodology.

“The indication that earnings a share for the full year will be down 22 percent to 27 percent was disappointing, and the downward revision to the rolling five-year ROE target to a range of 12 percent to 16 percent was below expectations.”

Investec Limited fell 3.3 percent to R47.55 yesterday.