Bank of Georgia LSE:BGEO (BoG), the FTSE250-listed commercial bank, and a ‘one to watch’ stock at The Armchair Trader, published another set of strong results this morning (14th November).
As previously reported, BoG had been benefitting from the distortion of the markets in the Caucasus region in light of the conflict between Russia and Ukraine. Along with local competitor, FTSE250-listed TBC Bank Group PLC LON:TBCG (TBC), both Georgian entities has benefitted from the intellectual and financial flight from its belligerent neighbours as business owners from both sides fled the conflict and brought with them their money and IP. Moreover, given Georgia’s strategic location on the Black Sea, with access to the Mediterranean and thence blue water ocean, many exporters in the Caucasus and Central-West Asia are using its ports as a safer route for exports as the Black Sea ports of Ukraine and Russia are out of action due to the ongoing war.
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The headline figure in the 3Q23 and 9M23 results was the bank’s increase year-on-year in net interest income, which was up 42% to GEL420m (GBP127m) and up 6.1% quarter-on-quarter. Operating income for 3Q23 was GEL642.5m (over nine-months GEL1.9bn), up 22% y-o-y but down marginally by 3.7% q-o-q.
Profit before tax and a one-off operational expense was GEL421.7m for 3Q23, up 32.5% y-o-y and up 37.8% to GEL1.2bn when corresponding nine-month periods were compared. Adjusted profit weighed in at GEL357m, up 23% y-o-y. Basic EPS was GEL8.12, nearly 30% higher than 3Q22.
Bank of Georgia shareholder returns
In August BoG declared an interim dividend of GEL3.06/share in respect of the period ended 30th June 2023 to ordinary shareholders. The interim dividend was paid on 27th October. In addition the bank announced a further share buy-back and cancellation programme of GEL62m. The company commenced the share buy-back and cancellation programme in October, and by the end of the month BoG had bought back 83,826 ordinary shares at a total cost of GEL9.2m, out of which 75,425 shares were cancelled as of 2nd November.
Archil Gachechiladze, CEO of BoG said this morning: “Bank of Georgia maintains a strong balance sheet, with significant buffers above its minimum capital requirements, supported by strong internal capital generation and further balance sheet de-dollarisation, which improves capital efficiency. An interim dividend of GEL 3.06 per ordinary share was paid to ordinary shareholders of the Group on 27th October 2023. The GEL 62 million share buyback and cancellation programme is ongoing.”
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Although the bank operates mainly in the Caucuses region, it is London-listed and as well as investing heavily in its digital banking services has an eye to expansios out of its immediate region. As reported, competitor TBC has already started operating in a significant manner in neighbouring Uzbekistan and BoG has a presence through JSC Belarusky Narodny Bank (BNB) in Belarus, where it offers retail and SME banking services. However, next month the European Commission will meet to decide whether to grant Georgia candidate status to join the EU.
EU Candidacy
Even if Georgia gains candidate status, it is a long and winding road for the country to gain full EU membership, and big brother Russia may have an opinion on Georgia forging closer political and economic ties with the EU block when it has finished in Ukraine. Nevertheless, Georgia is increasingly engaging with the EU and this will produce commercial opportunities for the country’s corporation – something, given BoG’s Investment Banking and Wealth Management capabilities, management is keen to exploit.
The region is still unstable, as the recent conflict between Azerbaijan and the contested Armenian enclave of Nagorno-Karabakh in September, and tensions can erupt very quickly. Georgia itself is no stranger to external aggressions, having been on the wrong end of a 12-day war with Russia in 2008, where Georgia lost territory in Abkhazia and South Ossetia, and Georgia is no regional military superpower. However, what it has been over the past 14-years is a model of stability.
Strong economic performance
The bank noted that the Georgian economy maintained its strong recent performance in the first nine months of 2023, driven by robust domestic consumption and investment spending. External demand continued to grow, but at a slower pace. The ongoing recovery in international tourism and gradual exit from tight monetary policy also supported the strong economic performance. According to preliminary data, real GDP growth was 6.8% in 9M23, with main contributions from trade, information and communication, and construction activities. Real GDP growth is expected at 6.8% in 2023 driven by strong domestic spending along with resilient external inflows. The lari has been quite stable as a currency over the last year.BoG opened trading today (14th November) at 3,520p and has offered a year-to-date return of 34.6%, and a one-year return of 44.6%. Bank of Georgia’s shares have ranged from 2,218.14p and 3,762p over 52-weeks. The bank has a market capitalisation of GBP1.6bn.
Broker, Peel Hunt had earlier in the year said profit was ahead of consensus and should provide the basis for estimate upgrades. The broker said the results appear “strong and clean,” continuing the company’s positive momentum, whilst the valuation multiples “allow for substantial potential upside.”
