Investec (LON:INVP) - the Anglo South African Investment Bank and Asset Manager released a trading update yesterday. They started the Performance Overview with the following statement (or understatement) :
"Overall group results have been negatively impacted by the depreciation of the Rand: Pounds Sterling exchange rate over the period."
To help get a feel for this as it is important to the investment case here see the Rand to Pound Graph. This along with other emerging market currencies has been under pressure on the back of concerns about tapering of the US Feds Quantitative easing. This has left the Rand at around five year lows against Sterling.
Now I'm not an economist, but on a cursory glance at Africa's economic outlook it looks OK, although high unemployment, funding of the trade deficit and a budget deficit (like many developed economies) seem to be the main concerns with the funding one being most pertinent in relation the withdrawal of QE and investors fleeing emerging markets. So you need to be aware of the currency risk with this one, but equally at five year lows, it could always go the other way for a while and become a tail wind rather than a headwind.
Despite this headwind Investec was still able to report total operating income 1% ahead and Operating profit before goodwill, acquired intangibles, non-operating items and taxation and after other non-controlling interests 12% ahead of the prior year. An increase of 25% on a currency neutral basis. It is also worth noting that recurring income as a percentage of total operating income amounted to approximately 74% (2012: 71%), supported by higher average funds under management. So I would suggest that the earnings are reasonable quality, albeit subject to market and currency volatility in the case of asset management fees. Since 31 March 2013 (the end of the group's financial year): Third party assets under management decreased by 2% to GBP 108.0 billion - an increase of 6% on a currency neutral basis.
On the banking side things seem to be improving as Impairment losses on loans and advances decreased by 26%. Customer accounts (deposits) decreased by 10% to GBP22.1 billion - an increase of 3% on a currency neutral basis. Core loans and advances decreased by 9% to GBP16.8 billion - an increase…
