Half Year 2027 Investec Ltd Pre-Close Earnings Call
Speaker #1: Mode. There will be an opportunity to ask questions later during the conference. If you should need assistance during the call, please send a message in the Q&A chat.
Speaker #1: Please also note that this call is being recorded. I would now like to turn the conference over to Investec Group Chief Executive Mr. Fani Titi.
Speaker #1: Please go ahead, sir.
Speaker #2: Thank you, Donald. Good morning all, and thank you for joining us for update. This update reflects the financial performance for the 5 months under 31 August 2026 and the expected results for the 6 months ending 30 September 2026.
Speaker #2: I'm joined in this call by Nishlan Samujh, Group Finance Director, Ruth Leas, the CEO of our UK business, and Kumesh Mudlier, the CEO of our South African business.
Speaker #2: I will now hand over to Nishlan to take you through today's announcement.
Speaker #1: Thanks, Fani. And good morning, everyone. The group is expected to deliver results in line with guidance provided in May 2026. Stable year-to-date performance was underpinned by disciplined execution, strong client franchises, continued balance sheet growth, and sound asset quality.
Speaker #1: In a period of persistent uncertainty, we continue to support our clients while investing in the business for long-term growth. Our strategic priorities remain unchanged: growing and enhancing our client propositions, allocating capital efficiently, and modernizing our operating and digital platforms to support sustainable value creation.
Speaker #1: Tending to performance for the 5 months ended 31 August 2026. Revenue was supported by increased client activity levels, higher average advances, as well as net inflows in our wealth business.
Speaker #1: This was counterbalanced by the negative impact of lower average interest rates as we anticipate to experience in the short term. Operating cost growth reflected investment in client-facing roles, technology, and strategic and regulatory projects to support growth, as well as annual salary adjustments.
Speaker #1: Looking at the underlying drivers for our core client franchises: net core loans from our banking businesses increased by 6.3% annualized in neutral currency, and by 10.3% annualized in reported currency to 37 billion pounds.
Speaker #1: Benefiting from the 3.3% appreciation of the rand to the pound sterling compared to 31 March 2026. Growth was driven across our private client lending and corporate lending books in both geographies.
Speaker #1: Customer deposits increased by 2.8% annualized in neutral currency and by 6.8% in reported currency to 46 billion pounds. Funds under management in our Southern African wealth and investment business increased by 13.8% since March 31 March 2026 to 30.7 billion pounds at 31 August 2026.
Speaker #1: We saw strong inflows in both discretionary and non-discretionary funds. For the 6 months ending 30 September 2026, we expect to report the following: adjusted earnings per share to be between 3 and 7% ahead of the prior period; cost to income ratio to be between 52 and 54%; pre-provision adjusted operating profit to be between 1 and 4% ahead of the prior period; credit loss ratio to be within the through-the-cycle range of 25 to 45 basis points; group return on equity to be between 13.1 and 13.5% within the guided range of 13 to 14%; group return on tangible equity to be between 15 and 15.5%; within the guided range of 14.8 and 15.8%.
Speaker #1: The group maintains robust capital and liquidity levels enabling us to continue supporting our clients and execute our growth strategy. We remain committed to advancing returns toward the upper end of our target range by FY 2030.
Speaker #1: I will now turn the call over to questions.
Speaker #2: Thank you, Nish. Ladies and gentlemen, if you would like to ask a question, please use the Teams functionality to raise your hand. Once you have been identified, please unmute yourself and ask your question.
Speaker #2: You may also type your question in the Q&A chat. If you decide to withdraw your question, please lower your raised hand. Again, if you would like to ask a question, please use the Teams functionality to raise your hand or type your question in the Q&A chat.
Speaker #2: For those who have dialed in telephonically, please key in * and then 5 on your telephone keypad to raise your hand. Once you have been identified, please key in * and then 6 to unmute yourself and then proceed to ask your question.
Speaker #2: Should you wish to withdraw your question, please key in * and then 5. Our first question comes from Harry Botha of Bank of America.
Speaker #2: Harry, please go ahead.
Speaker #3: Good morning. Thanks very much. Just some questions on the net interest margin movement, please excluding the impact of interest rates. Could you possibly give us a sense: is that ultimately net positive or net negative in terms of the deposit optimization as well as you're seeing?
Speaker #3: And is that competitive pricing across both markets? And maybe a second question just around the private banking strategy: are you starting to see customer growth lift as you've planned in terms of your 2030 targets already?
Speaker #3: Thank you.
Speaker #1: Thanks, Harry. I think overall, net interest margin I would say remains net positive, however the impact there are two drags on margin. As I've indicated, lower interest rates average interest rates in both South Africa and the UK, will create a drag in the short term.
Speaker #1: But as we've always indicated, lower interest rates are much better for activity levels. The second aspect is that at the end of the day, we are in low-growth environments, in both geographies, and we continue to experience elements of margin squeeze as the competitive landscape remains significant.
Speaker #1: That being said, we continue to grow our retail deposit base. We continue to enhance our cost of deposits overall, and that is well managed across the group.
Speaker #1: And when we look to the longer term, our focus on growing our mid-market exposure and corporate exposure will net net positive positively impact the line.
Speaker #1: So we remain pretty positive. With regard to private clients, maybe Kumesh could give you some detail from a South African perspective and Ruth will step in as well from a UK perspective.
Speaker #2: Thanks. Thanks, Harry. From a South African perspective, we've actually seen good levels of activity in the private client space, particularly in respect of our mortgage book.
Speaker #2: From a client acquisition perspective, we are seeing continuing positive client acquisition over the coming period. We expect our annual sort of rate of new net new clients to increase and right now we're tracking between 7 and 8% of core client growth in the SA context.
Speaker #4: Thanks, Kumesh. Hi, Harry, just talking about the UK and private client growth continuing to see very good growth in the space. Our mortgage growth has been around 9 to 10% through this period.
Speaker #4: We are in the early stages of launching our enhanced transactional banking offering, which is very exciting and is landing very, very well with the few clients that we have launched to so far.
Speaker #4: So we do expect the rate of increase in client growth to pick up as we move forward with this in time.
Speaker #5: I'm in Harry just on the net interest margin story. You will know that in South Africa, we continue to improve our gathering of deposits in the retail sector, and we have been working to reduce our dependence on wholesale funding so that over time continues to be positive on our cost of funding.
Speaker #5: Clearly, with the pressure that both Nishlan and Kumesh talked about from a competitive perspective, that has a downward impact but the volumes because we are doing more are better.
Speaker #5: So those are the forces that shape your overall net interest income outcome.
Speaker #2: Thank you, ladies and gentlemen. Please use the Teams functionality to raise your hand or send your question in the Q&A chat function. Ladies and gentlemen, if you would still like to ask a question, please use the Teams functionality to raise your hand or send your question in the Q&A chat function.
Speaker #2: At this stage, as they are oh, there is a question from Sipilele Ndudu. Sipilele, please go ahead.
Speaker #3: Good morning. Thanks for the opportunity and thanks for the call. I just wanted to find out if you guys can hear me first.
Speaker #1: Yes, we can.
Speaker #3: Yes, please. I mean, SA continues to do well. You're guiding ROEs to the upper end and credit losses to the lower end. And I've asked this question before.
Speaker #3: Seems to me you are living profits on the table. Why are you not being more aggressive in terms of growth? And SA, where profitability seems to be even much better.
Speaker #1: Kumesh, I think that's one thing.
Speaker #2: Joubert, thanks. Thanks, Nish. Sipilele, as we look at the market, we look across all the segments. We're operating in across both corporate and investment banking business and commercial banking, private banking.
Speaker #2: We actually have seen across all of those segments outside excluding structured our structured property finance book, outside of all of that, we're actually seeing double-digit growth in our lending books across those segments.
Speaker #2: And for us, that says that we're remaining market relevant. We're pricing competitively. And at the same time, managing our risk profile carefully. We do not believe though, however, that we are risk appetite is too conservative.
Speaker #2: We're continuing to see opportunities across different segments. And also, as part of our Africa region strategy over the next period, we look to grow what we'd call our Africa region's book.
Speaker #2: So we believe that we are being very growth-minded in the way we're approaching it. We are areas that we'll look at specifically around business and commercial banking.
Speaker #2: We've got very good loan book growth, but of a lower base. There, we would anticipate that as we continue to grow, that you would have a slightly more elevated credit loss ratio in respect to that particular portfolio over time.
Speaker #2: But again, we are targeting a very specific segment there. So the short answer is we believe we have appropriately managing our risk against growth objectives.
Speaker #2: We will continue to grow more aggressively into areas where we believe there's real opportunity. Two segments that we're focusing on would be one, the business and commercial banking, which I've mentioned, the Africa regions, and a third segment that we're starting to see greater levels of activity is in the income-producing real estate sector.
Speaker #2: So those would be the three that I'd say to you we will make sure that we are risk-adjusting our appetite to take into account market conditions and opportunity.
Speaker #3: Okay. Thanks a lot. That's much appreciated. Jen, if I may ask on the UK, book, Ruth?
Speaker #1: Yep, Ruth.
Speaker #4: Hi there, Sipilele. Just in terms of the UK book, we have actually seen the credit loss ratio moderate through this particular period. As you know, it's been pretty stable over the last number of periods.
Speaker #4: And we continue to focus on very similar types of lending to what we've done before. We've seen very good and strong growth in various areas on the corporate side, fund finance, aviation finance, energy and infrastructure finance, as well as our mortgages in spite of a very weak macroeconomic backdrop in most of the countries we're operating in, except for the US.
Speaker #4: So we continue to gain market share in that space. And we feel that our risk appetite is very appropriately placed for where we play in the market.
Speaker #2: Ladies and gentlemen, this is just a reminder. If you would like to ask a question, please use the Teams functionality to raise your hand or send your question in the Q&A chat function.
Speaker #2: If you have doubt in telephonically, please key in star and then 5 to raise your hand. And then star and 6 to unmute yourself once you have been identified.
Speaker #2: At this stage, as they are no further questions, I will now hand back to Investec Group Finance Director Nishlan Samuj for closing remarks.
Speaker #1: Thanks, Don. Thank you for your time this morning. If you have any further questions, please don't hesitate to get in touch. With our team.
