Bank of Georgia Group Plc (BGEO) is a UK incorporated holding company, the new parent company of BGEO Group PLC. The BGEO Group demerged its Investment Business and Banking Business on 29 May 2018. Two new entities were formed - Georgia Capital PLC and Bank of Georgia Group Plc. The company’s business is divided into geographic-based operations. The company operates retail banking & payment services, wealth management operations and corporate investment banking in Georgia and BNB (banking operations in Belarus). The company’s retail business is currently serving a client base of over 2.4 million. The company is Georgia’s retail banking leader with 271 branches, 3,115 Express pay terminals and 876 ATM’s. Under its wealth management business, the company has a client base of 1,528 individuals from 76 countries globally. The corporate investment banking business presently accommodate over 2,500 business from multiple sectors such as energy, tourism, trade and others. The company’s BNB business facilitates individuals and businesses with banking services in the Belarus region.
The current Non-Executive Chairman is Neil Janin and was appointed in 2018. Archil Gachechiladze holds the responsibilities of the Chief Executive Officer and joined the group in 2009. Sulkhan Gvalia holds the responsibilities of Chief Financial officer and Deputy CEO.


Key Statistics



Top Shareholders
   

Recent News
On 15th July 2019, Bank of Georgia Group announced that EBRD (European Bank for Reconstruction and Development) and JSC Bank of Georgia entered into a loan agreement of GEL 28 million with a maturity period of 5 years. The agreement was aimed to cater to the needs of different enterprises for local currency and align their businesses with the requirements of the Free Trade Agreement of the European Union. BGEO’s wholly-owned brokerage subsidiary, Galt & Taggart arrange GEL-denominated bonds for EBRD to raise local currency funds.

BGEO’s subsidiary, JSC Bank of Georgia entered into a loan agreement with EFSE (European Fund for Southeast Europe) of US$10 million with a maturity period of 10 years. The subordinated loan is as per the Basel III framework for Tier II capital introduced recently in Georgia.

Recently Bank of Georgia Group had acquired extra.ge, a leading e-commerce platforms in the Georgian market. The online platform will help the bank to increase its B2C (business-to-consumer) and C2C (consumer-to-consumer) sales via its website and social media. extra.ge has 80,000 registered sellers and buyers with 100,000 products and services, and 350,000 returning visitors every month.

Trading Update Q1 FY2019

 
(Source: Quarterly Report, Company Website)
 
For the first quarter of the financial year 2019 ending 31st March 2019, the company’s reported net interest income was up by 0.9 per cent to GEL 182,941 thousand against GEL 181,240 thousand in Q1 FY2018. The company’s total operating income surged by 10.5 per cent to GEL 258,714 thousand in Q1 FY2019 from GEL 234,094 thousand in Q1 FY2018, driven by a strong performance from Retail banking and Corporate Investment Banking businesses. In Q1 FY2019, Operating income before the cost of risk was up by 7.4 per cent to GEL 159,133 thousand from GEL 148,133 thousand in Q1 FY2018. Profit before tax was GEL 110,921 thousand in Q1 FY2019 against GEL 111,372 thousand in Q1 FY2018, giving a decline of 0.4 per cent. Profit from continuing operations declined by 0.1 per cent to GEL 101,972 thousand in Q1 FY2019 from GEL 102,089 thousand in Q1 FY2018. The profit for the year (Continuing & Discontinued) was down by 22.2 per cent to GEL 101,972 thousand in Q1 FY2019 from GEL 131,027 thousand in Q1 FY2018. In Q1 FY2019, Basic earnings per share were 2.12, down by 32.7 per cent from 3.15 in Q1 FY18. The diluted earnings per share for Q1 FY2019 stood at 2.11 versus 3.04 in Q1 FY2018.

Segments

The company’s operations are divided into four reportable segments being retail banking & payment services, wealth management operations and corporate investment banking in Georgia and BNB (banking operations in Belarus). In Q1 FY2019, the operating income increased from Retail banking was 5.8 per cent. The corporate investment banking business reported an increase of 26.8 per cent in operating income. In the financial year 2018, the revenue increased from retail banking and corporate investment banking whereas revenue from BNB business declined. Profit for the year increased from all the businesses in FY2018.

Financial Highlights – Financial Year 2018 (GEL, thousand)


(Source: Annual Report, Company Website)
 
For the financial year ending 31st December 2018, the company’s reported net interest income was up by 10.3 per cent to GEL 741,753 thousand against GEL 672,535 thousand in FY2017. The company’s total revenue surged by 14.5 per cent to GEL 1,030,439 thousand in FY2018 from GEL 900,336 thousand in FY2017, driven by increase in revenue from interest income, fee and commission income and foreign currency gain in the current financial year.

In FY2018, Operating income before the cost of risk was up by 16.4 per cent to GEL 654,926 thousand from GEL 562,849 thousand in FY2017. 

Profit before tax was GEL 437,545 thousand in FY2018 against GEL 391,253 thousand in FY2017, giving an upside of 11.8 per cent.

Profit from continuing operations was up by 4.4 per cent to GEL 380,880 thousand in FY2018 from GEL 364,661 thousand in FY2017. The profit for the year (Continuing & Discontinued) was up by 5.5 per cent to GEL 488,778 thousand in FY2018 from GEL 463,449 thousand in FY2017.

In FY2018, Basic earnings per share were 10.78, down by 7.1 per cent from 11.61. The diluted earnings per share for FY2018 stood at 10.71 versus 11.07 in FY2017.

Key Performance Indicators
 

Profit before non-recurring items and income tax

This indicator represents the revenue and profit minus cost of risk and operating expenses on IFRS basis. The company’s Profit before non-recurring items and income tax was up by 23 per cent to GEL 492.6 million in FY2018 from GEL 400.4 million in FY2017.


Basic earnings per share

This KPI shows the earnings made per share. It is calculated by Profit after tax (attributable to shareholders) divided by the number of outstanding shares. In FY2018, the company basic EPS stood at 9.92 versus 9.63 in FY2017.


Operating Leverage

Operating leverage shows % change in income less % change in the expenses (operating). BGEO’s operating leverage stood at 2.9 per cent in FY2018 versus negative 0.1 per cent in FY2017.


Net promotion scale

NPS (Net promotion scale) indicates the likeability of a brand by its customers. In the financial year 2018, the BGEO’s NPS was 38.8 per cent as against 27.4 per cent in FY207.


Customer satisfaction

This KPI measures the level of satisfaction of customers towards the brand and its product offerings. The company’s CSAT was 25.3 per cent in FY2018 versus 25 per cent in FY2017.

Share Price Performance
 

 
Daily Chart as at July-29-19, before the market close (Source: Thomson Reuters)

On July 29, 2019, at the time of writing (before the market close, at 12:40 PM GMT), Bank of Georgia Group Plc shares were trading at GBX 1,489.00, down by 0.07 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,927.00/GBX 1,299.60. Stock’s average traded volume for 5 days was 64,528.40; 30 days – 61,890.73 and 90 days – 62,119.39. The average traded volume for 5 days was up by 4.26 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.64, reflecting lower volatility as compared to the benchmark index. The outstanding market capitalisation was around £731.64 million, with a dividend yield of 4.85 per cent.
Valuation Methodology

Method 1: Price to Book Value Approach (NTM)

 

To compare Bank of Georgia Group Plc with its peers, Price/Book multiple has been used. The peers are IG Group Holdings Plc (NTM Price/Book was 2.46), Arrow Global Group Plc (NTM Price/Book was 2.44), TBC Bank Group Plc (NTM Price/Book was 1.05), Secure Trust Bank Plc (NTM Price/Book was 1.08) and Bank VTB PAO (NTM Price/Book was 0.36). The average of Price/Book (NTM) of the company’s peers was 1.40x (approx.)

Method 2: Price to Cash Flow Approach (NTM)
 
To compare Bank of Georgia Group Plc with its peers, Price/Cash Flow multiple has been used. The peers are Moskovskaya Birzha MMVB-RTS PAO (NTM Price/Cash Flow was 8.00), Arrow Global Group Plc (NTM Price/Cash Flow was 5.17), Secure Trust Bank Plc (NTM Price/Cash Flow was 6.50), TBC Bank Group Plc (NTM Price/Cash Flow was 3.35) and OneSavings Bank Plc (NTM Price/Cash Flow was 6.20). The Average of Price/Cash Flow (NTM) of the company’s peers was 5.80x (approx.)

Growth and Risk Assessments

The company had a strong capital position in the first quarter of the financial year 2019 with Total Capital Adequacy and Basel III Tier 1 ratios of 17.1 and 12.7 per cent, respectively. The company is a market leader in its retail business and corporate invest in the business in its home market. The company had launched a new internet banking platform in the Q1 FY2019, to cater to the needs of its existing and new clients. In the Q1 FY2019, the company’s credit risk ratio has increased as compared to the Q4 FY2018’s ratio reflecting tight conditions on consumer lending. The rise in credit risk is also dependent on seasonal factors.

Conclusion

There had been a significant growth in the financial performance in the Q1 2019 and in the financial year 2018. The company had delivered growth in top-line and bottom-line performance for the financial year 2018. The company is seeking to gain benefit from the growth in the Georgian economy via its Retail Banking and Corporate Investment Banking divisions.

The company is looking forward to delivering on its strategy based on 20% Return on Average Equity (ROAE) and 15-20% growth of its loan book for medium to long term. The company is looking forward to becoming a leading organisation in Georgia not only in terms of financial performance but also as an innovative company with digital leadership and regional wealth management.

In the Q1 FY2019 and FY2018, the company had delivered a robust balance sheet and income from fee increased. In Q1 FY2019, the company had launched its unique real estate platform in Georgian real estate market with cutting edge technology.The company’s cost management techniques had benefited both Retail and Corporate Investment Banking businesses. The current macroeconomic factors are benefiting the company’s operations. 

The company is entering into loan agreements with various agencies with an aim to cater to the needs of different enterprises for local currency and align their businesses with the requirements of Free Trade Agreement of the European Union.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 1,488.00 (as on 26th July 2019) with high single-digit upside potential based on 1.40x NTM Price/Book (approx.) on FY19E book value per share (approx.) and 5.80x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and peer information have been taken from the Thomson Reuters. Currency Rate is 1 GEL = 0.27692 GBP.
*The buy recommendation is also valid for the current price as covered in the report (as on July 29^th, 2019).

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