Bank of Georgia Group Plc – Operating with a Strong Market Position and Balance Sheet

FTSE 250-listed Bank of Georgia Group Plc (LON: BGEO) is a United Kingdom-based holding Company, the new parent Company of BGEO Group Plc. The Group’s business is divided into geographic-based operations.

Recent News

On 15 July 2020, the Company signed a five-year US$100 million multi-currency loan agreement with the EBRD (European Bank for Reconstruction and Development). This loan will support micro, small and medium-size companies by providing uninterrupted access to long-term funding. Also, this is the first long-term from EBRD to Georgia as part of coronavirus crisis support. Further, the loan is designed to facilitate on-lending to the Georgian lender’s clients to withstand the economic consequences brought by the COVID-19 pandemic. The loans come after JSC Bank of Georgia (a subsidiary of the bank) signed a loan guarantee agreement for €60 million on 7 July 2020, with EIB Group (European Investment Bank Group) under InnovFin Guarantee (the InnovFin SME Guarantee Facility).

Q1 FY20 Update (as on 14 May 2020)

During the first quarter of the financial year 2020, the net interest income increased by 3.7% to GEL 197.08 million (Q1 FY2019: GEL 189.98 million). Despite the impact of COVID-19 for the period, the operating income remained strong and increased by 6.1% to GEL 274.48 million in the first quarter of the financial year 2020 (Q1 FY2019: GEL 258.71 million). The Group’s loss stood at GEL 99.95 million in the first quarter of the financial year 2020 versus a profit of GEL 101.97 million in the Q1 FY2019. Regarding the liquidity position, the cash balance surged by 29.7% to GEL 1.51 billion as on 31 March 2020 (31 March 2019: GEL 1,162,168 thousand). Also, the loan book and client deposits increased by 37.3% and 29.1%, respectively, on a year-on-year basis.

Share Price Performance


 1-Year Chart as on 28 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Bank of Georgia Group Plc’s shares were trading at GBX 802 on 28 July 2020 (before the market close at 9:45 AM GMT+1), up by 0.25% against the last day closing price. Stock 52 week High and Low were GBX 1,845.00 and GBX 690.00, respectively.

From the technical standpoint, 90-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

The Company operates in multiple geographies, and the profits can be impacted negatively due to foreign exchange rate fluctuations. To meet the new regulations, the Group needs to implement new processes, failing to do so would increase the compliance risk.The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Valuation Methodology



Conclusion
The Group is well-positioned with robust liquidity, capital, and funding resources. The Company is seeking to gain benefit from the growth in the Georgian economy via the Corporate & Investment Banking and Retail Banking divisions. BGEO is expanding the footprint of the banking business in Georgia. The Group will continue to operate with the National Bank of Georgia and the Government of Georgia to take suitable measures for COVID-19. The above loan agreement will support micro, small and medium-size enterprises by providing uninterrupted access to long-term funding. Overall, the Group is looking forward to becoming a leading organisation in Georgia and an innovative Company with digital leadership and regional wealth management.

Over the course of 3 years (FY16 - FY19), the Company’s net income surged from GEL 398.54 million in FY2016 to GEL 497.70 million in FY2019. Compounded annual growth rate (CAGR) stood at 7.69%.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 802 (as on 28 July 2020, before the market close at 9:45 AM GMT+1), with lower double-digit upside potential based 0.74x Price/ NTM Book Value (approx.) on FY20E book value per share (approx.).

Secure Trust Bank Plc – Operating with Capital Discipline and Sound Liquidity Position

Secure Trust Bank PLC (LON: STB) is the United Kingdom-based retail bank, providing saving account and lending services with 1.5 million customers and 956 employees. It was founded in 1952.

On 6 August 2020, the Company will announce the interim results.

Trading Update (for the first five months of 2020, as on 24 June 2020)

The Group has traded profitably in the first five months of 2020 but experienced substantial dip in the lending volumes in April 2020 and May 2020, particularly in invoice finance, real estate finance, and motor finance. Recent lockdown easing has led to surged demand for customer finance, as activity levels in motor and retail finance have risen. Credit risk appetite expected to stay cautious for some time. During the first five months of 2020, the Group witnessed strong capital and liquidity ratiorelative to the position at the end of 2019.Moreover, the Company stays focused on stringent cost management.

Share Price Performance


 1-Year Chart as on 28 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Secure Trust Bank Plc’s shares were trading at GBX 618.00 on 28 July 2020 (before the market close at 9:50 AM GMT+1), down by 1.12% against the last day closing price. Stock 52 week High and Low were GBX 1,730.00 and GBX 618.00, respectively.

From the technical standpoint, 90-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

Market volatility can impose liquidity risk with an impact on the lending volumes. Also, the risk of cybercrime and dependency on technology continues to grow.The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Valuation Methodology



Conclusion
The Company has a robust balance sheet, with benefits of the diverse and flexible business model demonstrated by the ability to take advantage of market opportunities. Also, the Group witnessed a positive momentum, driven by strong profit growth. COVID-19 outbreak could bring significant challenges to the UK and global economy. Despite the prevailing uncertainty, the Company’s has shown a healthy capital and liquidity position with a flexible business model. Moreover, the short duration loan portfolio makes it well-positioned to navigate the current crisis. Overall, the full-year results are expected to be aligned with market expectations, and it showed a moderate demand for consumer and housing finance.

Based on the above rationale and supported by valuation done using the above method, we have given a "Speculative Buy" recommendation at the current market price of GBX 618 (as on 28 July 2020, before the market close at 9:50 AM GMT+1) with lower double-digit upside potential based on 0.61x Price/ NTM Book multiple (approx.) on FY20E Book Value per share (approx.).
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.

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