BofA says 'sell-off' in Investec not justified, reiterates 'buy'
Investec
508.00p
16:34 25/04/24
Analysts at Bank of America sounded a very positive note on shares of Investec, highlighting a slew of factors which pointed to a potential total shareholder return of 17%, helped not least by a "now relevant" dividend yield of greater than 6%.
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Indeed, in their judgement, the investment bank's ongoing efforts to "simplify volatile business lines may have caused some confusion", leading to selling pressure on the stock despite the firm having beat consensus estimates for first half profits.
Yet revenues were holding up, demonstrable progress had been made on costs, the potential existed for improved margins in the UK, cost savings from restructuring, and for better margins in South Africa on the back of the Covid-19 vaccine.
The miss on net interest income, with Investec reporting £359m against analysts' forecasts for £376m, was driven by "transient" weakness in South Africa, they added.
So too, losses and negative mark-to-markets on structured products were the result of "significant dislocations" caused by the pandemic "but should fade as stability continues to improve".
At 2.2 times' adjusted earnings per share, the reinstated dividend also looked "adequately" supported, they said.
All told, BofA bumped-up its estimates for Investec's earnings per share over 2021-23 by 14.2%, helped by a favourable tailwind worth 5.9 percentage points from the rebound in the South African rand.
In turn, their target price for the shares was revised from 180.0p to 212.0p and the recommendation kept at 'buy'.