By Peet Serfontein, Jalpa Bhoolia
Investec is an international specialist bank that provides a range of financial products and services to a niche client base in its core geographies, the United Kingdom (UK) and South Africa. The company is dual-listed on the Johannesburg Stock Exchange and the London Stock Exchange.
Investec trades at a substantial discount to its peers even when accounting for the UK business. Additionally, Investec can benefit from its rand hedge qualities in the event of further rand weakness.
Technically, a developing rising wedge pattern presents an attractive investment opportunity (see the black converging trendline on the main chart).
A rising wedge pattern is typically considered bearish as it often precedes a reversal in an uptrend. Occasionally, a rising wedge forms during a decrease in volume, suggesting that the upward price movement within the wedge lacks strong conviction. However, a sudden increase in volume that accompanies an upward breakout from the wedge supports a bullish outlook. If the wedge forms in a long-term bull market, the wedge pattern could be considered a consolidation rather than a reversal pattern.
The insert on the chart shows the rolling Sharpe Ratio over time. Periods where the Sharpe Ratio is high suggest that the share was delivering superior risk-adjusted returns. During these times, the share's returns, relative to its volatility and the risk-free rate, were highly favourable. We are particularly interested in periods where the Sharpe Ratio is consistently positive and particularly when it is rising - this will justify a bullish stance.
According to the Relative Strength Index (RSI) , the stock will be overbought at ~R165. This classifies our profit target of R137 as realistic.
We suggest a low capital at-risk allocation to this trade.
Share Information
| Share Code | INL |
|---|---|
| Industry | Financial Services |
| Market Capital (ZAR) | 115.8 billion |
| One Year Total Return | 27.79% |
| Return Year-to-Date | -2.30% |
| Current Price (ZAR) | 122.70 |
| 52 Week High (ZAR) | 128.00 |
| 52 Week Low (ZAR) | 97.62 |
| Financial Year End | March |
| The stock has made solid gains over the past year and several technical indicators suggest further upside potential. The share remains above its 200-day simple moving average. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (GBP) | 0.83 | 0.74 | 0.80 | 0.85 |
| Growth (%) | -10.55 | 7.86 | 6.53 | |
| Dividend Per Share (GBP) | 0.31 | 0.34 | 0.37 | 0.40 |
| Growth (%) | 10.32 | 8.48 | 6.74 | |
| Forward PE (times) | 7.22 | 6.69 | 6.28 | |
| Forward Dividend Yield (%) | 6.42 | 6.97 | 7.44 | |
| Some earnings pressure is expected over FY24, with growth expected to recover over our forecast horizon. The dividend yield remains attractive. | ||||
Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | MRP - BUY (Continue to hold) | MNP - BUY (Continue to hold) | SLM - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 157.50 | 332.67 | 64.61 |
| Current | 180.85 | 363.00 | 68.30 |
| Movement | 14.5% | 9.1% | 5.7% |
|
A price coinciding with a trough in the business cycle remains of interest. Fading downside price momentum supports the trade strategy. The price remains above its 200-day simple moving average.
Our take profit target remains at R213 with a trailing stop-loss level at R158. Exit the trade on 7 April 2025. |
A share trading in a well-defined price range remains of interest. Upside price momentum is supportive. The price remains above its 200-day simple moving average.
Our take profit target remains at R379 with a trailing stop-loss level at R344. Exit the trade on 17 June 2024. |
A price above key support remains of interest. Fading downside price momentum supports the trade strategy. Crossed just above the 200-day simple moving average.
Our take profit target remains at R74 with a trailing stop-loss level at R64.70. Exit the trade on 10 June 2024. |
| Share Name and position | DCP - Buy (Continue to hold) |
|---|---|
| Entry | 32.49 |
| Current | 33.00 |
| Movement | 1.6% |
|
The share is in a developing symmetrical triangle pattern. Muted downside price momentum is supportive. Remains above its 200-day simple moving average.
Our take profit target remains at R37 with a trailing stop-loss level at R31. Exit the trade on 1 July 2024. |
