Investec Says Weaker South African Currency May Crimp Profit

Feb. 4 (Bloomberg) -- Investec Plc, which owns a bank and money manager in South Africa and the U.K., said full-year profit may be crimped after the rand slumped almost 11 percent against the pound over the past four months.

“Assuming all things being equal and that profits don’t grow in the second half versus the first half, then yes, the weakening rand will impact results further,” Ursula Nobrega, head of investor relations at Investec, said in an e-mailed response to questions on Jan. 29.

Investec reported a 1.6 percent drop in net income to 164.3 million pounds ($268 million) in the six months through September after a decline in the South African currency cut the value of its rand earnings. Southern Africa accounted for almost 70 percent of first-half operating profit. The rand has since dropped 10 percent against the dollar, making it the worst performer of 16 major currencies tracked by Bloomberg.

“We don’t hedge our profits” for currency risk, Nobrega said. “We’re not in the business of guessing where the rand may move to.”

Investec fell 0.4 percent to 386.50 pence as of 3:25 p.m. in London trading, bringing this year’s decline to 12 percent. The six-member FTSE 350 Banks Index dropped 4.1 percent in that period. The stock fell 1.6 percent to close at 69.46 rand in Johannesburg.

“The stock remains inexpensive, particularly given the substantial recovery potential, but there is a clear South Africa risk,” James Hamilton, an analyst at Numis Securities in London, said in a Jan. 31 note to clients. He has a buy recommendation on the company.

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