Investec Gains on RMB Morgan Stanley Report: Johannesburg Mover

Investec Plc, which owns a bank and money manager in South Africa and the U.K., rose to the highest in more than five years after RMB Morgan Stanley recommended in new coverage that clients buy the shares.

South Africa’s fifth-largest bank climbed as much as 3.9 percent to 67.42 rand in Johannesburg and closed up 1.8 percent at 66.05 rand, the highest since December 2007. Three million shares changed hands, 3.2 times the three-month daily average, according to data compiled by Bloomberg.

Investec may be undervalued by 25 percent, Johannesburg-based RMB Morgan Stanley analyst Greg Saffy said in a note to clients yesterday. “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,” he said.

Investec said on Nov. 15 the six months through March would be “challenging” after net income dropped 5 percent to 168.5 million pounds ($265 million) in the half year 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 above the median estimate of 38.1 pence from 12 analysts surveyed by Bloomberg.

“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. “We believe that Investec’s de-risked, back-to-basics approach will result in higher, more predictable earnings, which in turn should lead to a re-rating.”

Investec, which is due to release an interim management statement on Jan. 31, has risen 12 percent in Johannesburg this year compared with a gain of 3.5 percent for the six-member FTSE/JSE Africa Banks Index. Saffy gave the lender’s London shares a 12-month price estimate of 525 pence. They rose as much as 3.7 percent and closed 3.1 percent higher at 474.40 pence.

Before it's here, it's on the Bloomberg Terminal.