LON:BGEO | A Bank Stock That Keeps On Giving! - Bank Of Georgia

25th May '16 by Dearg Doom

11 comments 11776 reads

BGEO (LON:BGEO)

Market Cap £977 million

Share Price £25.73 (up circa 5% over two days on latest financial quarter release)

First quarter results at 31/3/2016.

About Bank of Georgia plc now called BGEO plc

Largest retail bank in Georgia. The bank provides retail banking, corporate banking, investment management, investment business, real estate, and utility investments

Retail Bank has circa 1.5 million customers and operates through 219 branches, 523 ATMs and 2239 Express Pay (self-service) terminals

Corporate Banking. It is the country’s leading source of trade finance and provides leasing services through wholly owned subsidiary Georgian Leasing Company (GLC). Works with over 6,000 companies

Investment Business BGEO is the main shareholder in the largest private healthcare service provider. They operate a synergistic business model that comprises healthcare services and health insurance.

Real Estate. m2, a 100% subsidiary develops residential property in Georgia.

Utilities. A major player in the Georgia market for utilities. Bank of Georgia owns Tbilisi water utility company with hydro-power facilities that can generate 143MW. The company hopes to have an IPO for this company in next five years.

Future Prospects

· Internal rate of return of at least 20% p.a. for each of company's individual future investments with partial or full exit in a maximum of six years in a well-defined exit path.
The underdeveloped corporate sector and weak competition create ample opportunities to benefit from growth prospects in various sectors of the Georgian economy growing 3.4% this year and continued growth predicted. Inflation is around the 3% and the Lari currency has appreciated against the dollar by 10% in the last year.

I do note also from the accounts that undistributed bank profits will have a proposed future zero rate tax charge applied. Only profits paid out as dividends will have a 15% deduction.

Future Dividends:

Bank of Georgia future dividend policy will comprise of recurring dividend payments linked to profits from the banking group, with a target payout ratio of 25–40%. In addition, they aim to pay special dividends upon the realisation of our financial investments, and are targeting at least three special dividends in the next five years.

BGEO highlights

1Q16 profit was GEL 87.0mln up 39.6% y-o-y

1Q16 earnings per share ("EPS") were GEL 2.10 (GBP 0.62 per share), up 28.8% y-o-y

Book value per share was GEL 50.29, up…

Unlock with Email

Unlock with Google

Already have an account?
Login here

mga

26th May '16

I have held this stock for a while. Any bank that can generate 20% return on equity is worth a look (basel 1 mind you).

Price to book c.1.5 which roughly means the market expects ROE to be 1.5x the cost of equity. Would be interesting to back out a cost of equity to see if this holds.

Dearg Doom

Hi mga.

RE BGEO (LON:BGEO)

Nice to know some one else owns this stock which is under the radar for most investors. I am always trying to find stocks like Bank of Georgia that get on with business and deliver year after year.

I was hoping other investors might suggest their own set of under the radar stocks. Ideally the shares should be making increasing profits/turnover for many years and paying increasing dividends.

Stocks to "own" rather than "trade" are the type of stocks where private investors can win big time.

Regards

Jeremy Rea

I looked at BGEO yesterday. It looks a solid company, as much as that can be said of any Bank given their complex nature, but to me it seems to be fairly valued at the minute.

IMO one to watch but not one to buy at the current price.

LovelyLovelyGorgeous

bxp

On what basis do you see it at full value?

Big currency play here, the stock has done well after the GEL devaluation last year.

27th May '16

I don't have my notes in front of me but from memory it was trading on a PE of approx. 10, which was slightly less than the UK banks (I appreciate it is more of a play on the Georgian economy, but I don't know of many other Georgian stocks to compare it to). I suspect it will continue to trade on a slight discount due its proximity to Russia and the fondness Mr Putin has for interfering in former USSR countries' domestic affairs, and occasionally, when the mood takes him, invading. Also the near 50% price rise in the last 3-4 months made me worry I'd missed the boat on this one.

It is one I'm watching but, for me, at this price it's fully valued. I may be wrong. You feel it has further to go?

Hi mga,

RE: BGEO (LON:BGEO)

Bank of
Georgia is always fully valued as the share will have to have significant discount on its share price for many good reasons

Firstly a discount will be applied for just for being a foreign bank with a London listing. The absence of UK media coverage will often mean it is overlooked while having a UK bank listing.

There is no real takeover premium as the Georgian government would be very unlikely let a
bid go through, given how important the bank is central to the country’s economic growth prospects.

Don’t forget currency risks and nearby Russia stretching its muscles occasionally could
cause migraine to investors at certain points in time.

EU membership which would transform Georgia is not foreseeable in the near future because the country does not have border integrity. Some parts of the country continue to be in dispute! Therefore EU membership is currently not possible.

The investment case is the long term growth story as the compound earnings year on year combined with the increasing normal dividend and special dividends that are expected.

Bank of Georgia is essentially an one stop country ETF which occupies the key profit areas of the country, like banking, insurance, construction, and as a healthcare provider. Very little competition in the market help Bank of Georgia to make out sized returns.

Share price at £25.00 is fully valued at the moment and may drop back to £21.00 with normal non-related market volatility. At that point, it is probably worthwhile picking up a few shares as a starting point. Get comfortable with the share and add while the outlook remains promising on a two to three year outlook.

The time to sell is when Georgia has a property bubble couple with credit expansion and the returns from extra investments made by the company are on the wane. Not to worry at moment. Georgia has at present low incomes by European standards and will take 20 years or so to catch up as its banking industry is underdeveloped. 15 – 20 years would be my time horizon for an exit.

Hope I have answered your query.

brucepackard

28th May '16

I IPO'ed the stock. Legal and compliance didn't want me to buy shares in it myself because they said it was a conflict of interest. But I had published a 40 page buy note. Taken them on a roadshow. And then bought the shares. Perhaps other investment bankers that IPO stocks should be forced to be long term holders and do this too. Skin in the game
http://www.standard.co.uk/business/markets/comment-who-is-square-mile-s-best-investor-7924478.html
I still own it. As does my mother.

If anyone is interested in the original note that I published back in Oct 2011 here is the link
http://brucepackard.com/wp-content/uploads/2014/10/Bank_of_Georgia-Oct-2011.pdf

Back then it was a GDR quoted in US dollars. Usual caveats apply. I hope I don't have to point out that you shouldn't rely on piece of research published 5 years ago for your buy ideas (I just did point that out!).
I'm posting because it is interesting to see what I got right and what I got wrong, what has changed, and what has not changed.

23rd Jun '16

£BGEO Price £26.62 up 3.2% Market Cap £1.05 billion

Bank of Georgia now known as BGEO made an immediate earnings enhancing acquisition of the 75% balance it did not own in Georgian Global Utilities (GGU) for circa $70 million, the price works out price at only 4.2x EV / EBITDA 2016E.

GGU provides water and water waste services to 1.4 million people, about a third of the population. Additional assets acquired includethree hydropower generation facilities with a total capacity of 143MW.

BGEO management quotes believe there is good upside from:

Stable cash collection rate. The Georgian water utility sector has low, but improving collection rates among households. The latest available data (from 2005), shows average collection rates at only 65% in major cities. The average collection rate from households throughout Georgia was only 45%.GGU's collection rate was 96% in 2015.

Increasing energy efficiency and reducing water loss rate.The Georgian water utility sector is also characterized by the existing high level ofwater losses of an average 50%, which is about 4-5 times higher than that in Western Europe, creating an opportunity for efficiency gains. Cost savings from reduction in water delivery losses to 40%, from the current 50% level creates an opportunity for significant efficiency gains. There is dual-effect from water delivery loss reduction, as freed-up energy can be sold to third parties.

Generation of additional income streams. This will require the utilisation of GGU's existing infrastructure andthe development of hydropower plants to increase electricity sales to third parties;and installing turbinators to achieve more efficient water supply.

BGEO is more than just a bank but a dominant industry player in many growth areas within the Georgian economy. As the Georgian economy catches up further in the decade ahead towards European standards of living, than I feel BGEO shareholders will be well rewarded. BGEO does not experience as in UK as well as most parts of Europe the lack of growth prospects due to overcapacity in many industries, coupled with shrinking margins due to lack of pricing power, and over regulation.

(Please note that I am long BGEO )

22nd Nov '16

Share Price £31.35p (+£3.36) up 12.0% today

Update on BGEO (Formerly Bank of Georgia)

Headline 3rd Quarter results looked very good today, but on a closer examination they showed once-offs gains in the results. This was due to the sale of its Visa and Mastercard shares which were than offset against some other once off write downs elsewhere within the group.

Don't get too excited with the y-o-y percentage rises for the 3Q below. Net non-recurring items distort the figures considerably and the results do require closer reading.

BGEO highlights

? 3Q16 profit was GEL 141.5mln (US$ 60.8mln/GBP 46.7mln), up 75.0% y-o-y

? 3Q16 earnings per share (“EPS”) were GEL 3.55 (US$ 1.52 per share/GBP 1.17 per share), up 74.0% y-o-y

? 9M16 profit was GEL 339.8mln (US$ 145.9mln/GBP 112.2mln), up 57.9% y-o-y

? 9M16 EPS was GEL 8.12 (US$ 3.49 per share/GBP 2.68 per share), up 47.4% y-o-y -

The Group’s figures have been positively affected by one-off items recorded during the reporting period, including partially offsetting one-off items below.

The combined effect of the deferred tax adjustments and “net non-recurring items” results in a net benefit of GEL 61.3mln in 9M16, of which GEL 25.5mln and GEL 34.6mln were reported in 2Q16 and 3Q16, respectively.

Profit excluding the effect of these deferred tax adjustments and “net non-recurring items” was GEL 106.9mln in 3Q16 (up 24.9% y-o-y) and GEL 278.5mln in 9M16 (up 25.2% y-o-y)

? Book value per share was GEL 56.03, up 28.5% y-o-y

? Total equity attributable to shareholders was GEL 2,142.6mln, up 28.5% y-o-y

? Total assets increased to GEL 11,286.1mln, up 13.6% y-o-y

? As of 18 November 2016, GEL 281.5mln liquid assets were held at the holding company level

It is not surprising the market was happy with the results on first reading. The share price shot up 12% today. Normally the share price does settle back down again after a few days. I suspect there will be a few opportunities to acquire the share at sub £30.00 level or even later on in an overall market setback.

This is a stock to buy and forget about for a number of years. Enjoy the increasing dividends and let the BGEO management carry on with growing the bank's profit.

RNS link for results just released

http://www.investegate.co.uk/bgeo-group--bgeo-/rns...

or from their website http://bgeo.com/uploads/toolkits/bgeo-group-plc-3q...

If you can't sleep at night, I have just seen the companies own 22nd November 2016 investor presentation. All 118 pages of slides. Here is the link.

http://bgeo.com/uploads/toolkits/bgeo-group-29.pdf

and finally BGEO own home website http://bgeo.com/

BGEO is unlikely ever to be taken over, because it is too big and too important to the economy to let go into foreign hands. However, given the relatively low price multiple for the bank with limited local competition and a dominant position within its markets gives me a lot of comfort.

I am a long term holder of the share and expect a share price trending upwards from year to year.

A bank stock that keeps on giving! - Bank of Georgia

Unlock the rest of this article with a 14 day trial

About the Author

Dearg Doom

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...