Investec shares up on hopes for Kensington mortgage unit sale

JOHANNESBURG Thu Feb 6, 2014 8:08am EST

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JOHANNESBURG (Reuters) - South African lender and asset manager Investec (INLJ.J) is considering the sale of its UK-based mortgage business Kensington, extending plans to dispose of underperforming assets and boosting its shares.

Investec, which has already said it is looking to sell some of its operations in Australia, said it had received expressions of interest in Kensington but did not say who from. It said it had appointed corporate finance firm Fenchurch Advisory to help in the process and said there was no certainty any sale would take place.

Investec bought Kensington, which had specialized in lending to home buyers with a poor credit history, in a 283 million pound ($461 million) deal in 2007 - just before the global economic crisis which sent a judder through the housing market in Britain and Ireland, where many of its assets were located.

Since then Kensington has changed its focus to safer "prime" lending but it has been dogged by a sharp fall in property prices in Ireland in particular, where the economy was one of the biggest casualties of the euro zone financial crisis. The parent company has been forced to take substantial impairment charges for its losses there.

However, signs of an economic turnaround may have created an opportunity to shed Kensington as some investors look to recovery plays.

"The market likes the restructuring in Australia and Kensington because they have been underperforming assets," said Tracy Brodziak, a banking analyst at Old Mutual Equities. "They just bought it at the wrong time of the cycle ... a significant part of the mortgage book is in Ireland and that obviously being a pretty poor environment in the last few years."

She declined to estimate how much Kensington might be worth.

SHARES RISE

Investec shares, which had dropped sharply from a more than six-year high of 78.12 rand set last month, were up more than 3.5 percent to 73.60 rand in Johannesburg at 1140 GMT.

Investec is also scaling back its Australian business to focus on a few areas including corporate advisory, property funds and project finance and has appointed advisors for the possible sale of the unit's professional finance and asset financing operations.

The group last month named veteran banker Ben Smith to run its Australian investment banking arm, the latest attempt to turn around the loss-making business, following the resignation of Christian Nicks after four years in the post.

In a nine-month trading update on Thursday, Investec also reported a scant 1 percent rise in total operating income in the first nine months of the year, restrained by a downturn in the rand currency, though it gave no figure.

The group, which is also listed in London (INVP.L) and reports its results in pounds, said it was hit by the sharp slide in the rand, while core loans fell 9 percent to 16.8 billion pounds. Impairment losses however shrank 26 percent.

Third-party assets under management fell 2 percent to 108 billion pounds.

Despite Thursday's gains, Investec's shares are still in negative territory so far this year with a 1.1 percent decline, though they have outperformed a 3.4 percent drop in Johannesburg's Top-40 index .JTOPI over the same period.

($1 = 0.6133 British pounds)

(Editing by David Holmes)

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