Bank of Georgia Group PLC

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

Recent News
On 16^th March 2020, the group released that it has a comprehensive business continuity plan (BCP) and also introduced several resilience protocols, which aimed at safeguarding the health and safety of all of the customers and staff. These precautions have been introduced in conjunction with the National Bank of Georgia and the Government of Georgia. The Bank of Georgia Group’s performance for the first few months of 2020 has been consistent, with, or marginally better than, its strategic targets and current guidance. Asset quality metrics remained to be decent.

Continued Strong Momentum in FY2019 Driven by Solid Performance Across All Segments

(Source: Annual Report, Company Website)

Operating income for FY19 totalled GEL 1,110.3 million, an increase of 7.8%, and profit before income tax expense and one-off costs increased by 21.9% to GEL 572.8 million in 2019. On a reported basis, the cost to income ratio increased by 220 bps to 38.9% in 2019. The return on average equity (ROAE) was reported at 25.4%, an increase of 250 bps y-o-y. On 31^st December 2019, the net loan book and finance lease receivables reached GEL 11,931.3 million, up 27.0% y-o-y and clients deposits increased by GEL 10,076.7 million. On a YoY basis, the Bank’s basic earnings per share surged by 19.8% to GEL 10.45. On 31st December 2019, the Basel III Common Equity Tier 1 (CET1), Tier I and Total Capital Adequacy ratios stood at 11.5%, 13.6% and 18.1%, respectively, all comfortably above the minimum required levels of 10.1%, 12.2% and 17.1%, respectively.

Expanding Footprint of the Banking Business in Georgia
The number of retail Banking clients rose by 4.1% to 2.5 million; the express pay terminals surged by 102 to 3,217; the Bank ATMs climbed to 933; the number of mBank transaction increased by 129.2% to 35.9 million; and transaction through digital channels rose by 1.1ppts to 93.2%.

Share Price Performance

Daily Chart as at March-17-20, before the market closed (Source: Thomson Reuters)

Bank of Georgia Group PLC shares were trading at GBX 1,226 before the market close (at 8:20 AM GMT) on 17^th March 2020 and were up by 8.50% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,845/GBX 1,037.

Valuation Methodology


Conclusion
There had been significant growth in the financial year 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 achieved adjusted Return on Average Equity (ROAE) of 26.1% and 27% growth of its loan book, which is well above the company’s strategy. 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. The Group is well-positioned with robust liquidity, capital, and funding resources. BGEO will continue to operate with the National Bank of Georgia and the Government of Georgia to take suitable measures for COVID-19.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 1,112 (as on 17th March 2020) with lower double-digit upside potential based 0.86x NTM P/BV (approx.) on FY20E book value per share (approx.).

TBC Bank Group PLC

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.

Recent News
On 12^th March 2020, the Bank announced it has decided to further expand the internationalization strategy of its neobanking platform Space and launch it in Germany in order to leverage the country's startup-friendly environment and the growing Georgian diaspora. In 2020, the total cost of the launch is expected to be approximately GEL 4 million. On 31^st December 2019, it attracted 181 thousand customers, while its loan book totalled GEL 27 million.

Strong Performance & Operations in FY19, Across all the Major Market Segments in Georgia

(Source: Presentation, Company Website)

For the financial year 2019, the underlying profit increased by 19.8% to GEL 545.1 millionas compared with the previous year, while the underlying return on assets was 3.3% and the underlying return on equity stood at 22.6%. Over the same period, the bank's standalone cost-to-income (C/I) ratio stayed robust and was stated at 35.9%. On a reported basis, the cost to the income of the company was 39.9% in FY19. As per the result released on 20th February 2020, the cost of risk was 0.7% in 2019. The net interest margin (NIM) for the financial year 2019 stood at 5.6%, while risk-adjusted NIM stood at 4.8% in the same period. On year-on-year (YoY) basis, the gross loans and advances to customers rose by 22.1% to GEL 12,662.0 million as of 31st December 2019. At the end of 2019, the total customers' deposits surged by 7.5% to GEL 10,049.3 million.

Share Price Performance

Daily Chart as at March-17-20, before the market closed (Source: Thomson Reuters)

TBC Bank Group PLC shares were trading at GBX 1,062 before the market close (at 9:30 AM GMT) on 17^th March 2020 and were up by 0.57% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,732/GBX 988.

Valuation Methodology


*Currency exchange rate taken for 1 GEL = 0.293688 GBP.
*Peers: Bank of Georgia Group PLC, OneSavings Bank PLC, Paragon Banking Group PLC, and Close Brothers Group PLC.

Growth Catalyst

(Source: Presentation, Company Website)
The above image shows the strong track record of growth and profitability. The company would like to restate the medium-term targets: cost to income ratio below 35%, loan book growth of around 10-15%, ROE of above 20%, and dividend pay-out ratio of 25-35%.

Conclusion
During 2019, the company has recorded a robust financial result and made substantial progress as compared with the strategic priorities.The company expects a good momentum in the year 2020. The company is on track to deliver superior results and to attain sustainable growth to the shareholders. Therefore, 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. In the short-term period, the company and industry will be impacted from COVID-19.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 1,042 (as on 17th March 2020, before the market close at 9:00 AM GMT) with lower double-digit upside potential based 0.75x NTM P/BV (approx.) on FY20E book value per share (approx.).

*All forecasted figures and Peer information have been taken from Thomson Reuters.

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