Bank of Georgia Group Plc

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

Investment Highlights – Bank of Georgia Group Plc – Speculative Buy at GBX 876.00

• The Company is focused on delivering better service to customers through collaboration with Salesforce.
• Over the course of 4 years (FY15 - FY19), the Company’s net profit surged from GEL 310.95 million in FY2015 to GEL 499.95 million in FY2019. Compounded annual growth rate (CAGR) stood at ~ 12.61%.
• From the technical standpoint, shares were trading well above the short-term support level of 50-day (GBX 880.64) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The Company’s performance would be impacted by the macroeconomic factors such as the depreciation of the Lari against the US Dollar, which may also have a material impact on the loan book.
• The Georgian economy and the business may be adversely affected by regional tensions and instability.

Recent News

On 13 October 2020, Bank of Georgia announced the signing of a new collaboration agreement between Salesforce and JSC Bank of Georgia (a subsidiary of Bank of Georgia). The Company is focussed on delivering positive digital experiences, with a variety of tailored solutions and services and a fully customer-centric business platform.

Financial Highlights – H1 Financial Year 2020 (30 June 2020)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2020, despite the covid-19 pandemic, the Company has delivered solid quarterly and half-year performance, with resilient operating income before the cost of risk of GEL 134.6 million.
• The net interest margin declined significantly in Q2 and H1 FY2020, due to a reduction in retail lending activity in April and May 2020.
• The Loan book and Client deposits increased by 19.1% and 30.8% on a y-o-y basis, while operating expenses also increased for the period.
• The Company has a solid capital adequacy ratios, with strong funding and liquidity position as on 30 June 2020.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in Q2 and H1 of the financial year 2020. Despite the lower profitability margins, the Company has a resilient operating income before the cost of risk. BGEO’s performance was significantly impacted by the outbreak of coronavirus, but the market showed signs on recovery in April and May. The Company has a stable and strong balance sheet and is a market leader in retail deposits. The Company experienced an improvement in Net interest margin, and lending portfolios are performing better than expectations. The capital ratios are improving significantly, and Return on Average Equity has returned to normal levels. The stock made a 52-week low and high of GBX 690.00 and GBX 1,845.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Bank of Georgia Group Plc at the current price of GBX 876.00 (as on 15 October 2020, before the market close at 8:13 AM GMT+1), with lower double-digit upside potential based on 0.78x Price/NTM Book Value (approx.) on FY20E book value per share (approx.).

PayPoint Plc

PayPoint Plc (LON: PAY) is an FTSE 250 listed Company, which provides consumer payment services.

Investment Highlights - PayPoint Plc – Speculative Buy at GBX 509.44

• As per valuation metrics, EV/EBITDA and Price/Cash Flow multiples of the PayPoint Plc are currently lower as compared to the corresponding multiples of the Professional & Commercial Services It reflects, shares are undervalued as compared to the industry.
• Over the course of 4 years (FY16 – FY20), the Company’s operating profit surged from GBP 1.34 million in FY2016 to GBP 56.99 million in FY2020. Compounded annual growth rate (CAGR) stood at ~ 155.37%.
• From the technical standpoint, 14-day RSI is in oversold zone and supporting an upside move (around 29 level), which means the stock price could increase in the short term.

Key Risks

• The Company has a large volume of payments which creates a significant risk of fraud or credit risk.
• The business performance is subject to uncertainties related to change in consumer trends, regulatory requirements, rapid technical innovation, and cybersecurity risk.

Recent News

On 2 October 2020, PayPoint announced the selection of Rosie Shapland, as a non-executive independent director.

On 30 September 2020, PayPoint was issued a statement of objections by Ofgem for breaching competition law. At present, investigation and findings are provisional, and no conclusion should be drawn.

Update on Trading performance for Q1 (released on 22 July 2020)

• In the first quarter of the FY2021, the Company demonstrated strong business recovery and operating platform, with the return of PayPoint One, parcels and cards sites to the network.
• The net revenue declined by 6.6%, due to contract end with British Gas. The net revenue from UK bill payments declined by 28.2%, while net revenue from UK retail services surged by 10.3%.
• The Company witnessed a progressive recovery in transaction volumes and strong card payment volumes from April.
• The net revenue from Romania business increased by 8.2% for the period, driven by margin improvement.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in revenue in the first quarter of the financial year 2021. Despite the lower revenue, the Company has shown strong business recovery and operating platform. The net revenue from UK retail services improved and were benefitted by an increase in service fees and card payments with the roll-out of PayPoint One. PAY and Deliveroo entered into a pilot partnership, which will help retailers find new revenue streams and reach a bigger customer base. The recent acquisition of Collect+ Group will allow more flexibility in developing and expanding the business. PayPoint with the integration of Retail Services function and Parcel Contact Centre is focussed on delivering an improved level of support to retailer partner. The issuance of a statement of objections by Ofgem will have a negative impact on the performance of the Company, but at present, investigation and findings are provisional. The stock made a 52-week low and high of GBX 389.00 and GBX 1,100.00, respectively.

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 price of GBX 509.44 (as on 15 October 2020, before the market close at 10:45 AM GMT+1) with lower double-digit upside potential based 11.37x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Dividend Yield may vary as per the stock price movement.

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

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