0R15 8884.0068 1.4156% 0R1E 9171.0 0.0% 0M69 None None% 0R2V 255.5 0.3929% 0QYR 1619.0 0.0% 0QYP 434.5 -0.344% 0RUK None None% 0RYA 1600.0 4.5752% 0RIH 195.2 1.3763% 0RIH 195.2 1.3763% 0R1O 225.5 9877.8761% 0R1O None None% 0QFP None None% 0M2Z 255.0 0.2457% 0VSO 33.3 -6.4738% 0R1I None None% 0QZI 596.0 0.0% 0QZ0 220.0 0.0% 0NZF None None% 0YXG 236.3943 1.5483%
Tbilisi, Georgia-based TBC Bank Group PLC (LON: TBCG) is the largest banking group in Georgia, serving around 83% of the adult population in Georgia. TBC is the parent company of JSC TBC Bank and its subsidiaries, catering to all key segments in the market, including retail banking, corporate banking, and micro, small and medium enterprises (MSME). The company is the universal banking group. It holds a dominant position in all of its key segments and leads the market in terms of total deposits, total loans and total assets. The group seeks to provide its customers with the most innovative solutions through upgrading its operations and continuously investing in technology and providing the group with a significant competitive advantage. To enhance, support and generate synergies with the core business, the company offers various financial services, in addition to banking, which is offered on an advanced omni-channel platform with a strong focus on digital. Through its subsidiaries, it also provides a wide range of other financial services like brokerage services, investment banking, leasing and insurance.
Key Statistics
Segments
The operations of the group are differentiated in three core operating segments, namely Retail, Corporate and Micro, Small and Medium Enterprises (MSME). The retail banking, through an advanced omni-channel platform for mass retail clients, offers a wide and diverse range of products. Moreover, the group offers sophisticated investment management and highly personalised private banking products to affluent and high net-worth individuals. The Corporate division offers brokerage, financial advisory and investment banking solutions, in addition to a full range of banking products and services, to large and mid-sized corporates. The MSME division serves micro, small and medium-sized businesses, and through the business support program, non-financial services and innovative banking solutions are offered to the start-ups.
The company used the omni-channel platform to generate the profit, with a robust focus on digital capabilities, drives greater operational and transaction volumes as well as higher sales of the financial products. TBC Bank also generates profit by utilising big data analytics to ensure greater client engagement and cross-selling; core banking products are praised with innovative services and fee-based; prudent risk management based on an integrated IT infrastructure and stringent internal controls; and a well-organized business model across all channels focused on productivity and effectiveness.
(Source: Company Website)
As per the latest data, the company’s key operational data includes: the number of customers are 2.6 million, a number of clients are 156, and the number of employees are 7,500.The number of customers is differentiated into three areas: Retail (2.4 million customers), MSME (143 thousand customers), and corporate (3.1 thousand clients). The group delivered a number one market position by all the core metrics, including total assets of 38.7%, total loans of 38.7% and total deposits of 39.3%.
Top Shareholders
Management
Nikoloz Enukidze is the Chairman of the group; he joined the board in 2016. Vakhtang Butskhrikidze holds the responsibilities of Chief Executive Officer of the group since 1998. The CEO is supported by Giorgi Shagidze, who is the Chief Financial Officer and deputy CEO of the group.
Key Strengths
Leading position in the market with a consistent track record of growth and profitability, integrated business model focused on every segment of the financial services market, strong brand and reputation, advanced omni-channel platform with a strong focus on digital, superior customer experience, leading partner for businesses in Georgia, highly motivated and engaged team, experienced management team and high-quality corporate governance, and effective risk management.
Market Consensus
(Source: Company Website)
As per the market data provided by the company, approximately 99.6% of the company’s operations take place in Georgia, a growing economy with a dynamic transport, service and tourist paradise that takes advantage of the country’s central geographic location, natural beauty, renowned hospitality, and educated population. Georgia is located at the strategically crucial crossroads where Europe meets Asia. This country has a long track record of a well-diversified economy and resilient economic performance.
On year on year basis, the real GDP growth was 4.7% in H1 FY2019.According to the preliminary estimates, the economy for the third quarter of 2019 expanded by 5.7%, mostly reflecting the low base effect. Overall, the growth is projected to be above 4 per cent for 2019 and 2020. The economy should deliver approximately 5% growth rate from the second half of 2020. On a constant exchange rate basis, the bank credit increased by 14.6% YoY in September 2019. In terms of segments, the corporate loans growth was 21.5% YoY, MSME lending growth of 16.8% YoY, retail credit growth of 8.1% YoY, mortgage lending growth slowed to 19.4% YoY, and non-mortgage lending reduced by 3.6%. According to the IMF, the Georgian economy is expected to increase by 4.6% in 2019 and 4.8% in 2020.
The Georgian banking sector is prudently and conservatively controlled by the National Bank of Georgia. As a result, it displays robust liquidity and capital control, as well as high profitability, sustainable growth, and sound asset quality.
Q3 FY 2019 (in Georgian Lari, GEL)
(Source: Third Quarter, Company Website)
Due to the continued effect of the regulations introduced in January 2019, excess liquidity, decreasing yields and pre-payment fee of a subordinated loan, net interest income amounted to GEL 186.2 million, down by 6.7% YoY, while net interest margin was 5.0%. Net fee and commission income totalled GEL 47.1 million, up by 19.6% on YoY basis and by 8.2% on QoQ basis. Cost to income stood at 39.9%, up by 2.5 percentage points on YoY basis and down by 0.3 percentage points on QoQ. The total credit loss allowance stood at GEL 25.7 million, down by 22.8% on a QoQ basis and down by 46.0% on a YoY basis. Return on assets stood at 2.8%, down by 0.3 percentage points YoY and by 0.2 percentage points on a QoQ basis. Return on equity stood at 20.4%, down by 0.8 percentage points on a YoY basis and by 0.3 percentage points on a QoQ basis, as net income for the third quarter increased by GEL 19.4 million, or 18.1% and on YoY basis to GEL 126.8 million.
Total assets amounted to GEL 18,170 million as of 30 September 2019, up by 26%.Compared to the minimum required levels of 9.8%, 11.9% and 16.7%, Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios (CAR) stood at 11.9%, 14.7% and 19.4%, respectively, and total equity was reported at GEL 2,499 million, up by 21.6%.
Financial Highlights (H1 FY 2019, in Georgian Lari, GEL)
(Source: Interim Report, Company Website)
During the first half of the financial year 2019, interest income rose by GEL 80.2 million or 13.4% to GEL 678.2 million, driven by an increase in the interest income from loans and advances to customers of GEL 56.5 million. Reflecting an increase in net fee and commission income from guarantees of GEL 3.2 million and a rise in other net fee and commission income of GEL 6.4 million, net fee and commission income was up 15.2% or GEL 11.3 million to GEL 85.3 million. Operating income after credit impairment losses during the period amounted to GEL 477.78 million against GEL 422.56 million reported in the corresponding period of the last year. Underlying net income rose by GEL 40.9 million, or 18.8%, over the year to GEL 258.3 million, while reported net income for 1H 2019 increased by GEL 53.6 million, or 26.8%, to GEL 253.5 million.
Key Performance Indicators
(Source: Annual Report, Company Website)
The employee satisfaction for the financial year 2018, which is indicated by ENPS, rose to 66%,showing a considerable growth from 55% reported in 2017, while engagement index reduced by 4 percentage points. Indicating a strong performance in digitalisation, Retail transaction offloading ratio, which shows the number of transactions conducted in remote channels divided by the total number of transactions, rose by 2.3 percentage points to 90.6%, while internet banking penetration ratio and mobile banking penetration grew year-on-year and amounted to 43.7% and 37.0% respectively.
Financial Ratios
(Source: 9M FY2019, Company Website)
For the first nine months of 2019, the return on equity was 21.6%, a slight increase of 0.4 ppfrom the corresponding period of the last year. The return on assets stood at 3.1% and remained flat as compared to the last year. NIM for the first nine months of 2019 stood at 5.5% as compared to 7% recorded in 9M 2018 period. Risk-adjusted NIM for the same period amounted to 4.5%, a decrease by 0.8 pp YoY. In 9M FY19, the cost to income increased by 2.33 pp to 39.3% against 37% in 9M FY18. The group’s leverage in the current quarter and first nine months of 2019 was at 7.3x.
Share Price Performance
Daily Chart as at December-09-19, before the market close (Source: Thomson Reuters)
On December 09, 2019, at the time of writing (before the market close, at 11:10 AM GMT), TBC Bank Group PLC shares were trading at GBX 1,280, up by 1.587 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,732/GBX 1,124. At the time of writing, the share was trading 26.09 per cent lower than the 52w High and 13.88 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 31,073.40; 30 days – 35,246.97 and 90 days – 43,900.00. The average traded volume for 5 days was down by 11.84 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.61, reflecting lower volatility as equated to the benchmark index. The outstanding market capitalisation was around £694.96 million, with a dividend yield of 4.51%.
Valuation Methodology
Method 1: Price to Book Value Approach (NTM)
To compare TBCG with its peers, Price/Book Value multiple has been used. The peers are Halyk Bank AO (NTM Price/Book Value was 0.05), Bank VTB PAO (NTM Price/Book Value was 0.36), TCS Group Holdings PLC (NTM Price/Book Value was 2.80), and Bank of Georgia Group PLC (NTM Price/Book Value was 1.40). The average of Price/Book Value (NTM) of the company’s peers was 1.15x (approx.).
Method 2: Price to Earnings Approach (NTM)
To compare TBCG with its industry, Price to Earnings multiple has been used. The Industry Average of Price to Earnings (NTM) was 5.70x (approx.).
Growth Prospects
The company reiterated its medium-run targets, including loan book growth of 10-15%,dividend pay-out ratio of 25-35%, the cost to income ratio below 35% and ROE of above 20%. The group holds a commanding position in the Georgian market, with market share by total loans at 38.7% as of 30 September 2019 and market share by total assets at 38.7% as of 30 September 2019.
Indicating the strong credibility and growth prospects of the business, the group recently achieved the lowest ever yield by a Georgian issuer in the international debt capital markets. The total capital adequacy ratio (CAR) per Basel III guidelines and tier I capital ratio were above the minimum requirements, indicating a strong capital base and a robust liquidity position. To minimise the credit risk, the credit portfolio of the group is structurally highly diversified across industry segments, product types and customer types.
In the third quarter of 2019, the fiscal stance of the Georgian government was expansionary, and external inflows were reasonably strong.Driven by the growth in tourism and remittances inflows and improved trade balance, the current account deficit has narrowed in the first quarter, though credit growth has moderated. During the period, the currency was depreciated, which may have an impact on the credibility of the foreign borrowers.
Risks Assessment
Portfolio growth rates can be impeded, and portfolio quality and profitability might deteriorate in case of a slowdown of economic growth in Georgia. The value of loan collateral might also decline due to falling property prices, household disposable income decreases, thus impacting the financials of the group. Moreover, a fall in interest rates can lead to a fall in net interest margin, which can further deteriorate profitability. During an economic slowdown, expansion plans in the country would stop, limiting demand for new loans and impacting the repayment capacity of borrowers.
Conclusion
The company has repeatedly reported a decrease in the credit loss allowance that was driven by the improved performance of the loan book, and it expects net interest margin to stabilise at present levels after reporting a decline due to the continued effect of a new regulation that was introduced in January 2019.
The company continues to operate with a strong capital base and a robust liquidity position and is developing customer-focused digital ecosystems, along with enhancing its value proposition beyond the financial service. With a strong growth fundamental, the economy is expected to reach 5.2% in the long run, as the trade balance continued to improve, and remittance inflows were steadily increasing.
TBC Bank Group PLC witnessed a CAGR growth of ~23.58% in net interest income over the period of FY15-FY18 while net income recorded a stellar CAGR growth of ~25.73% during the same period.
Based on the decent growth prospects, and supported by valuation undertaken using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 1,260 (as on 06 December 2019) with single-digit upside potential based on 5.70x NTM Price/Earnings (approx.) on FY19E earnings per share and 1.15x NTM Price/Book Value (approx.) on FY19E book value per share.
*The “Buy” recommendation is valid for the current price as covered in the report (as on 09-December-19).
*All forecasted figures and Peer information have been taken from Thomson Reuters.Currency exchange rate taken for 1 GEL = 0.258273 GBP.
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