Investec Results: Good Revenues, Weaker UK Asset Quality

Investec (INVES: A1/BBB+) FY24 results (YT 31-Mar-24) show results marginally better than the pre-close briefing (20-Mar) but credit metrics are rather more mixed with UK specialist banking weakness seen. This is a tiny negative for the UK majors (Lloyds, NatWest) but more meaningful for Close Brothers (not a € credit issuer).

• Key credit stats: loan losses were improved on the half-year (2H24: c.24bp from 32bp in 1H24), towards the bottom end of the through-cycle range. Non-performers are 3.3% (from 3.2% at Sep-23) with the UK seeing quite a jump but the SA business improving to mostly offset. The rate of deterioration slowed meaningfully in the second half. CET1 ratio is 13.6% (from 13.2% at Sep-23). So, overall, a mixed bag.
• Revenues are 4% below consensus but an efficiency improvement, and that lower loan loss charge, meant adjusted net income was 3% above expectations.
• Outlook: FY25 RoE is seen around 14%, which is where consensus already. Within this, SA credit quality is seen as the better driver but with further deterioration in the UK expected. This is a weak lateral for other specialist UK business, asset finance and aviation lenders, such as Close Brothers (which already has its own problems).

Conf call is 0900 (London time) at https://www.investec.com/en_gb/welcome-to-investec/about-us/investor-relations.html