Bank of Georgia Group PLC

Bank of Georgia Group PLC (LON: BGEO) is a leading universal Georgian bank, which is headquartered in London and operates retail banking & payment services, wealth management operations and corporate investment banking in Georgia and BNB (banking operations in Belarus).

Recent News
On 18^th December 2019, the company announced that its subsidiary company (JSC Bank of Georgia), had signed a loan agreement of EUR 50 million with EIB (European Investment Bank). The loan agreement of up to 50 per cent can be drawn in Georgian Lari, whilst the residual amount expects to be denominated in US Dollars or Euros.

On 17^th December 2019,the company announced that its subsidiary, JSC Bank of Georgia had signed subordinated syndicated loan agreement of ten-year 107 million US Dollar arranged by FMO - Dutch entrepreneurial development bank (FMO).

Financial Highlights (9M FY19, GEL thousands)
Net interest margin over the year declined to 5.4%from 6.8% in the prior year, and net interest income stood at GEL 553 million. However, operating income of GEL 801 million rose by 5.8% from GEL 757 million in 9M 2018.

Driven by a strong increase in the fees and commission income from guarantees and letters of credit and strong performance in the settlement operations, net fee and commission income reached GEL 48 million in 3Q19 and GEL 133 million in 9M FY19. Total profit rose by 30.2% to GEL 343 million in the current period and GEL 134 million in the third quarter, representing a growth of 20.9%.

During the period, loan book growth reached 29.4% year on year and 7.2% quarter on quarter at 30 September 2019, and the Basel III Common Equity Tier 1 (CET1), Tier 1 and Total Capital Adequacy ratios stood at 11.1%, 13.3% and 16.8%, respectively. The company has actively continued the further development of its digital strategy, and the Georgian economy has continued to perform well, with a growth of 5.7% in the third quarter of 2019.

Share Price Performance

Daily Chart as at December-19-19, before the market closed (Source: Thomson Reuters)

On 19th December 2019, Bank of Georgia Group PLC shares were quoting at GBX 1,594 at the time of writing before the market close (at 10:15 AM GMT), down by 0.375% against the prior day closing price. Stock's 52 weeks High and Low are GBX 1,777/GBX 1,220. The company's stock beta stood at 0.77, reflecting low volatility as compared to the benchmark index.

The shares of the company have delivered a positive return of around 2.44 per cent in the last week. In the previous six months, the company’s stock has given investors approximately 19.76 per cent of a positive return.

Conclusion
In credit risk,the increase or decrease is also dependent on seasonal factors. In September 2019, the company has delivered a robust balance sheet and income from fee increased.

There had been a significant growth in the financial performance in the Q3 2019 and for the first nine months of 2019.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 at least 20% Return on Average Equity (ROAE) and 15% growth of its loan book.

Most importantly, the company is in the discretion to use half of the funds in local currency lending, which reinforces the positions with the private sector as a leading lender of the long-term GEL denominated financial resources.The long-standing and successful partnership with FMO has now stretched to this significant transaction, this time with a subordinated Tier 2 loan facility, which will assist an additional improvement in the capital position under the Basel III regulations.

Based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 1,594 (as on 19^th December 2019, before the market close).

Arrow Global Group PLC

Arrow Global Group PLC (LON: ARW) is a United Kingdom-headquartered financial services company engaged in the business of providing financial services. Its areas of operation are categorised into segments like Investment businesses, and asset management and servicing business. The group is engaged in buying and managing secured and the unsecured loan from the financial institutions like Banks and NBFCs.

Recent News
On 18^th December 2019, the company announced a fund raising of €838.0 million for inaugural pan-European NPL fund, with €628.5 million from third-party investors.

Financial Highlights (for the nine months ended 30 September 2019, £million)

(Source: Nine Months Results, Company Website)

For the first nine months of 2019, the free cash flow increased by 14.7% to £174.4 millionas compared with the previous year (Q3 FY18: £152 million). In the current period, the profit before tax surged by 65.6% to £42.4 millionas compared with the corresponding period of the last year. Underlying profit before tax reduced by 5.4% to £50.4 millionagainst the same period of the last year. Basic EPS for the nine months ended 30 September 2019 surged by 46.2% to 17.1 pence against the previous year (September 2018: 11.7 pence). The cost-efficiency program was on track. The leverage stood at 3.7x in the current period.

Share Price Performance

Daily Chart as at December-19-19, before the market closed (Source: Thomson Reuters)

On 19th December 2019, Arrow Global Group PLC shares were quoting at GBX 264.80 at the time of writing before the market close (at 11:15 AM GMT), up by 0.151% against the prior day closing price. Stock's 52 weeks High and Low are GBX 284.58/GBX 166.20. The company's stock beta stood at 1.32x, reflecting high volatility as compared to the benchmark index.

The shares of the company have delivered a positive return of around 18.32 per cent in the last week. In the previous three months, the company’s stock has given investors approximately 15.63 per cent of a positive return.

Conclusion
For the full year 2019, the company’s trading was in line with the market anticipations.The returns in the investment business stay desirable, and cash generation and collections both surged decently. The company’s focus continues to be to build out the fund management capabilities, and decent growth has been made following the formation of AGG Capital Management Ltd. As declared in the company’s interim results. The main aim is to build a fund management business which will drive significant progress in AMS (asset management and servicing) revenues. The company evolved to become a more capital-light, high margin business with less leverage. The new targeted lower leverage will be in the range of 3.0x-3.5x.

Before the end of 2020, the company’s total AUM will be targeting €2.0 billion.Deployment of AUM to begin early in 2020, delivering additional AMS revenue and fund management fee income to the company. Fund raising is vital for the growth of the company’s fund management capabilities and is crucial to the company's strategy to increase speed towards a more capital-light model.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from £110.7 million in FY14 to £311.10 million in FY18. Compounded annual growth rate (CAGR) stood at 29.48 per cent.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 264.40 (as on 18^th December 2019).

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