Georgia Healthcare plc (LON:GHG) Versus Bank of Georgia plc (LON:BGEO)

27th Apr '16 by Dearg Doom

3 comments 7491 reads

Bank of Georgia V Georgia Healthcare plc?

Georgia Healthcare (LON:GHG) Share Price £1.93 Market Cap £258m

BGEO (LON:BGEO) Share Price £22.39 Market Cap £898

Introduction:

How are the two foreign companies connected? Well, Bank Of Georgia plc originally owned 100% of Georgia Healthcare plc. In a UK listing 6 months ago, Bank of Georgia sold circa one-third of its holding in Georgia Healthcare at £1.70.

Georgia Healthcare plc is the largest hospital provider in the country. They are also a large medical insurance provider. The recent introduction of universal health care system in Georgia means health care demand is on the increase.There should be plenty of opportunities for Georgia Healthcare plc to take out smaller hospital players with new cash in its balance sheet and an ability to gear up.

Bank of Georgia plc took advantage of market interest in an array of health groups listing in 2015 in London. I reckon they still sold their 1/3 shareholding of Georgia Healthcare for the price they paid for the whole company a few years earlier.

Georgia Health plc is simply a foreign owned company with excellent immediate prospects. It is not like one of those other blue sky stocks which in many cases get undue attention for far too long, only to see the same blue sky stocks fade back into oblivion with heavy stock losses for private investors.

Back to the original question which one? Bank of Georgia plc is my preferred choice of the two stocks because it is a safer but slower overall diversified company. Bank of Georgia does have other investments apart from banking and healthcare. They include real estate and utilities. It is my conviction stock!

Obviously, with any investment in a different country, there are political and currency risks. I apply a discount for that risk against the growth potential on offer.

Regards

Dearg Doom.

PS (BGEO is one of my conviction stocks for a number of years. GHG is also held indirectly through my BGEO holding)

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ExpectingValue

28th Apr '16

22.5% YoY growth rates are made less impressive by 8% inflation; 11.4% return on equity made less impressive by an 8% headline interest rate in Georgia.

It looks like, this week, Georgia sold a tranche of five year government bonds at an 11.75% coupon.

By investing in a Georgia stock, you are taking all the risk of that government bond - currency risk, internal inflation, political risk, geopolitical risk - and additional equity risk, with a number of imponderables around governance and execution.

London listings of emerging market securities have a dangerous flavour to them. They present themselves as nice, British companies with annual reports, RNSs and typically a slate of English-sounding non-execs. This is all well and good, but the fact it is listed over here eliminates very few of the risks you would encounter if you were to open a Georgian stockbroking account and buy something on their local market. And very few are keen on doing that.

My point is this - you say you discount the risk against the growth potential on offer. I do not envy you, because this implicitly requires an opinion on Georgian macroeconomics and politics. I am not smart enough to have one and, to my great detriment, the only Georgian politics I remember is Russian tanks showing up at their door. Not typically a risk I like to have much exposure to in my equity portfolio.

Dearg Doom

Hi Expecting Value,

Thank you for such a detail reply to my article for Bank of Georgia. I was highlighting the share as a share worth watching. Your response is exactly what I like to see, quality opposing views on a shares I like. Sometimes we become too blind to certain matters. A good response like yours certainly highlights areas for further consideration.

Was it a home run?

Yes for a moment I was indeed deflated a little, but I’m back for something worthy of your consideration.

Let me for illustration sake only, take a bank one of the big four banks in an unknown country, operating …...

· in an environment with virtual zero net interest margins
· tepid economic growth if any
· exposed to increasing number of regulatory fines
· declining real earnings
· overbanked.
· add in relative high labour costs
bad debt write offs
· plus high corporation taxation
· no dividend or dividend cuts.
· political will to continue to punish banks now and in the future at every opportunity.
· challenger banks eating their lunch in a competition war.
· political threat of country leaving the trading bloc it belongs to.
· Ah yes, the country may have possibly have been involved in an illegal war

Valuation Questions

What multiple of earnings would you put on those banks?

Are they just a value traps?

Is their business model not effectively broken for the foreseeable future?

Trip to Georgia

Now take a plane trip with me to a country that is growing at 4%+ a year and has been for many years and will do so at similar rate projected over next five years.

Inflation is at 4.1% to March 2016 and likely to be at that rate for next few years as well. Corporation tax is only 15%.

Interest rates are circa 8% now but forecast to drop over next three years to 5% which shows an improving economic trend.

The country reminds of Ireland with 4 million population 20 years ago which is was going to grow fast and for a long time. The dominant two banks in Ireland, became absolute massive at that time before the Celtic bust. Let’s say they were worth 20 billion each.

Bank of Georgia is valued less than one billion. It is so well diversify into every potential profitable aspect of the Georgia economy, such as real estate, insurance, and hospitals etc. Obviously the market leader in the new financial products that we take very much for granted.

Bank of Georgia when seeking investment returns in its own county will and can earn a greater return than the Georgia Government bonds are offering even. One would need to deduct at least 5% currency depreciation each year to get the real rate of return not forgetting moves back home in your currency before your earn any return.

Georgia has a high unemployment rate around 12.5% which will keep pressure on wages staying in line with inflation only. Neutral effect overall.

Negative points are the country’s exposure to external commodity prices. They make a huge percentage of imports. They can play havoc with sudden movements i commodity prices. The country has a negative balance of trade. One can expect 5% depreciation in currency on average every year.

This is my choice as a multi-bagger for years to come. I am being paid 4% yield on the present share price while the share price appreciates. Current share price will oscillate around this figure, drop a little back to £20 and eventually return to a new high..

This article is wrote for entertainment and shared information purposes only. I have put this share as an invitation to others to mention some other share not normally mention here.

Above all please, do not use information here as reason for speculation in the stock. Feedback welcome.

PS Dow Jones dropped sharply while typing this article. Smart big investor Carl Icahn selling very liquid technology stocks Apple, Microsoft and Cisco. Downside momentum contradicted after the close with better than expected results from other technology stocks like Amazon by 11%, Linkedin up 14%, and Expedia up 10%.

Hectic trading next few days to the downside I suspect!

1st May '16

Hi Herbie,

(Answering your question in this particular thread to keep the thread consistent on the particular stocks mentioned above.)

I do not hold Georgia Healthcare plc. Although Georgia Healthcare is a growth stock, the risk/reward is not sufficient to hold the stock on its own, particularly when I can own Bank of Georgia plc on a lower p/e, a bank that still owns 2/3rds of Georgia Healthcare plc,

Bank of Georgia's plc share price in the last five years has grown from under £10.00 to circa £22.00+ which is 120% increase in share price. I am happy with that rate of return and the doubling of dividend over that period. The translation of profits back into sterling may vary from year to year but the pathway is certainly up.

Readers, please recommend other (under the radar) stocks. The stocks must be performing well over a number of years. You are most welcome to reply with the company's name and tell us why you still like the company.

Georgia Healthcare plc (LON:GHG) Versus Bank of Georgia plc (LON:BGEO)

Bank of Georgia V Georgia Healthcare plc?

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Dearg Doom

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