Bank of Georgia BGEO
March 06, 2023 - 6:07pm EST by
2023 2024
Price: 30.00 EPS 7.5 7.5
Shares Out. (in M): 45 P/E 4 4
Market Cap (in $M): 1,600 P/FCF 4 4
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT N/A N/A

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  • Banks


I recommend a long in Bank of Georgia (LSE: BGEO), a leading retail and commercial bank in the country of Georgia (traded on the LSE). 

BGEO operates in an attractive duopoly market with strong and improving country-level fundamentals, misperceived geopolitical risk, excellent Western-trained Management, and a sustainable track record of 20%+ ROEs (which it has consistently delivered for 15+ years). The business trades at just ~1x book value and ~4x earnings and is actively returning capital through buybacks and dividends. 
I believe shares could close to triple in the next 3 years and compound for many years thereafter. 
Country fundamentals
Founded in 1903, Bank of Georgia was nationalized and then re-privatized in 1994. In 2003, Georgia overwhelmingly elected a pro-Western government that implemented comprehensive reforms to eliminate corruption and transform Georgia into a free and pro-business country, an environment that persists to this day. Bank of Georgia was restructured in 2004 (new Management and foreign investors) to catalyze a turnaround of what was at the time a failing lender. Over the next two decades, BGEO cleaned up its balance sheet, shed non-performing loans, raised capital and recapitalized itself, and is now the largest and most efficient bank in Georgia, eventually listing on the London Stock Exchange in 2012. 
In 2018, Bank of Georgia demerged into two businesses - Bank of Georgia, the core lending and retail banking business, and Georgia Capital, a holding company with equity interests across a diversified portfolio of Georgian operating businesses. The merger was intended to simplify corporate structure and firewall the equity risks of the investment business from a deposit-taking systemic lender. Georgia Capital continues to own 22% of Bank of Georgia today.  
Despite its continuing stigma as a frontier market in the former Soviet Union, Georgia is an excellent pro-business country with stable institutions, high GDP growth, low inflation, and low corruption. The country is a central hub of trade and business activity in Central Asia, has diversified economic linkages with 45 free trade agreements including the EU and China, a low tax regime (0% corporate tax on retained earnings), and a vibrant and growing tourism sector. The country is fiscally stable with ~40% public debt / GDP and fiscal deficits at ~2-4% of GDP. Real GDP growth has averaged ~4% for the past 10 years, while inflation has averaged ~4%. 
The World Bank ranks the country as 7th in the world for "ease of doing business" and 2nd in "Regulatory Quality" and 3rd in "Control of Corruption" among "Upper Middle Income" countries. The Heritage Foundation ranks the country as 15th in the world for "Investment Freedom" and 26th for "Economic Freedom".  Left-wing parties are unpopular and typically command a small percentage of votes. 
Despite the geopolitical overhang on the region, the Ukraine invasion has actually been a positive catalyst for the Georgian economy. Since the onset of the war, Georgia has benefitted from a significant influx of Russian migrants that has increased remittance flows, population, and brought in a talent pool of skilled workers including an estimated ~80k to ~200k Russian IT workers. The government sees an opportunity to capitalize on this changing labor pool and turn Georgia into a more meaningful exporter of IT services. Trade routes that historically ran through Russia have also been diverted to Georgia in some cases, and several multinationals that used to operate in Russia have relocated their operations to Georgia. 
While a future conflict between Russia and Georgia is possible, I believe the geopolitical risks are overstated. Georgia is essentially one of the most "de-risked" among the former republics of the Soviet Union because Russia already invaded the country in 2008 and took back its intended territories. Russia has little more to gain territorially at this point. The unsuccessful invasion of Ukraine has also weakened Russia economically and militarily and bolstered Nato's resolve against further Russian aggression. 
Business fundamentals
Despite an already dominant market position, BGEO has continued to increase its market share across multiple markets, with loan share increasing from 33% in 2016 to 36% today and deposit share increasing from 32% in 2016 to 39%. The Georgian banking market is a stable duopoly between Bank of Georgia and TBC Group, who collectively command 70% of the Georgia banking market. Foreign banks have continued to cede share, going from 32% of the market in 2006 to less than 15% today. 
BGEO's exposure to a a highly attractive macroeconomic backdrop, combined with a highly attractive market structure, has translated to a financial profile that is best in class on a global basis, with high net interest margins (~6%), high ROAs (~4-5%), high ROEs (~25%), and low NPLs (~2.5% of gross loans). The Company is well capitalized (15% CET1) with modest leverage and has consistently delivered ~20%+ ROEs for the past 15 years (which briefly dipped to 13% in 2020). The Company is also successfully executing on its digital initiatives, with 1.1M MAUs on its "super-app" today (representing ~30% of Georgia's population), growing 30%+ y/y with excellent user engagement (~45%-50% DAU / MAU) and growing transactional volumes. 
In contrast to other emerging market banks, Georgia Capital is fully private. There has been no state ownership of commercial banks since 1994. Management is excellent - the CEO has been with the bank since 2009 and is Western-trained and educated (Cornell MBA, Lehman Brothers / Trilantic, etc.). The Company is actively returning capital and has an explicit capital allocation policy of returning ~30-50% of net income through dividends and buybacks. The Board is mostly composed of Western executives, including the founder of Gemmstock, a London EM hedge fund that is also a large shareholder. 
Valuation framework
The Company has a book value of £30 per share today. I believe given the dynamics described above, book value can compound at ~18% per annum for the next 3 years. Assuming no re-rating, that should deliver very satisfactory returns.  
At a ~6x P/E or ~1.5x P/B exit multiple (justified versus the sustainable ROE framework of the business and with multiple examples of high ROE fast growing emerging market banks that trade for higher), combined with £6 per share of cumulative dividends, I believe shares can trade at £80 per share by 2025, from ~£30 per share today, representing a 2.7x multiple on capital.    
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


  • Growing investor interest in the Georgian economy 
  • Normalization of the Ukraine-Russia geopolitical situation
  • Expansion of market capitalization and float
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