The Investment Column: Sleeping giant Investec can carry on winning friends despite uncertainty

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The Independent Online

Since listing on the London Stock Exchange two years ago, Investec has been one of the sleeping giants of the FTSE 350. Although it is one of the largest UK-listed financial services companies, trading in the stock has been minimal and - until six months ago - its share price has been reluctant to reflect any improvement in the underlying business.

Since listing on the London Stock Exchange two years ago, Investec has been one of the sleeping giants of the FTSE 350. Although it is one of the largest UK-listed financial services companies, trading in the stock has been minimal and - until six months ago - its share price has been reluctant to reflect any improvement in the underlying business.

Like Old Mutual, much of the market's indifference comes out of the fact that Investec is a large South African company (from where almost two-thirds of its revenues are generated), with much smaller UK and Australian subsidiaries tacked on. As a result, many do not regard Investec as a bona fide UK stock, and are wary of the fact that any investment in the group involves taking a serious bet on the fortunes of the South African rand.

Slowly but surely, however, the group appears to be winning investors round. Since it became involved in the takeover of Rensburg at the end of last year, beefing up its UK presence, its shares have been on the rise. And since this column last advised investors to buy the stock in November, it has risen more than 17 per cent. The shares leapt another 4 per cent yesterday, as the group turned in an impressive set of full-year results, unveiling a 55 per cent rise in pre-tax profits, driven by substantial growth across all areas of the business.

In the UK, its private client and investment banking businesses both have an impressive momentum, while back home the company is cashing in on a lending boom fuelled by the country's lowest interest rates in more than two decades.

With a yield of more than 4 per cent, and trading on less than 10 times next year's anticipated earnings - compared with as much as 20 times for some of its rivals - Investec presents real value for investors now, even in the face of a weakening rand.

Although short-term currency fluctuations and uncertainty in the UK financial markets may hold the stock back, its prospects for the medium to long-term are solid. At 1,642p, we reiterate our buy recommendation.

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