Investec May Be Undervalued, RMB Morgan Stanley’s Saffy Says

Investec Plc (INVP), which owns a bank and money manager in South Africa and the U.K., may be undervalued by 25 percent, RMB Morgan Stanley analyst Greg Saffy said.

“Most South Africa operating divisions have reached scale, product and service is being rolled out in the U.K., the balance sheet is reasonably robust and the bank is highly liquid, but this is not reflected in the market value,” Johannesburg-based Saffy said in an note sent to clients yesterday as he initiated coverage and rated the stock buy. The 25 percent estimate “could prove to be conservative,” he said.

Investec forecast the half year through March to be “challenging” after net income dropped 5 percent to 168.5 million pounds ($265 million) in the six months ended Sept. 30. The company, based in London and Johannesburg, may post diluted adjusted earnings per share of 39 pence in 2013, Saffy said. That’s in line with the median estimate of 38.4 pence from 12 analysts surveyed by Bloomberg.

The lender, which is due to release an interim management statement on Jan. 31, has risen 12 percent this year. While Saffy gave the stock a 12-month price estimate of 525 pence, it rose as much as 3.7 percent to 477 pence as of 9:15 a.m. in London, the biggest intraday gain in more than two months, giving the company a market value of 4.19 billion pounds.

“We expect 90 percent of earnings growth in 2013 and 2014 will come from solid South African franchises of scale combined with decent traction in specialized lending and asset management in the U.K,” Saffy said.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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