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UK banking stocks: Investec shares jumped 30% in April! Should I buy now?

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There’s a broad range of UK banking and finance stocks within the FTSE 250. I can choose which part of the industry I want to get exposure to and also change between domestic and international companies. Even though the business model is similar, there’s a large difference in performance from different banks at the moment. Investec (LSE:INVP) shares have been soaring recently, up 30% during April. So what’s the story here?

A FTSE 250 UK banking stock

Investec is a dual-listed bank in the UK and South Africa. It was founded in South Africa, but now has a solid presence in Europe and beyond.

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In terms of its offering, it has investment, private and corporate banking facilities. This makes it a well-rounded and diversified business, but without the large scale of the likes of HSBC. I don’t see this as always being a bad thing, as it allows Investec to be more nimble in its approach. 

Its financial year runs through to the end of March, so I’m waiting for the results to come out next month. However, a trading update released in March gives me some optimism for Investec shares. This might initially sound strange. After all, it warned of adjusted operating profit to come in 16% to 24% behind the previous year. This is largely due to lower interest rates, lower client activity and costs associated with hedging risk.

Investec shares initially fell on the announcement, but have rallied back strongly once the information was fully digested. Why was this? Well in my opinion, the 2020 recording period is the worst things will ever be for Investec. The year ran from the end of March 2020 to the end of March 2021. This encapsulates the worst 12 months of the pandemic so far.

So although there was a hit to profit, I think things could have been a lot worse, so Investec shares are seeing almost a relief rally. 

My outlook for Investec shares

I think the rally could continue from here. The bank spoke of an “improving trend”, particularly in the last recorded quarter. When I look at other UK banking stocks that have already reported this year, the bounce-back in profits looks very promising. I recently wrote on HSBC Q1 results, which were very strong. Although banks’ performances will differ, I think Investec should reflect this broad positive trend in UK banking stocks in general.

I think Investec is well placed to put 2020’s woes behind it. Liquidity and capital are robust, with cash and near-cash funds at the end of February coming in at £13.9bn (representing 40.8% of customer deposits).

One risk I do see for the bank is the fact that the South African business still dominates the group. It accounted for well over half the operating profit in 2020. The political and economic situation in South Africa traditionally has been very volatile, which should be noted before thinking about investing there.

Overall, I do think Investec represents one of the best UK banking stocks to buy now and am considering it myself. With 2020 behind it, I think the trend could be higher, and see it as a great alternative to the big four FTSE 100 banks.

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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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