Taking the plunge on Britain’s banks is risky business right now. Throw in a dark economic outlook for the UK economy over the medium term, the persistence of low interest rates, and still-booming PPI provisions, and it’s no surprise that many (including myself) are concerned about their profits and dividend potential in 2020 and beyond.
Those wanting to grab a slice of the banking sector shouldn’t be put off completely, however. It’s still possible to make great returns here; investors simply need to look away from home shores and to businesses making a splash abroad. Take Bank of Georgia Group (LSE: BGEO) as a perfect example.
Wow @ profit growth
The Eurasian banking mammoth has long been a favourite of mine thanks to the rate at which the economy in that part of the world is growing. And my confidence has been reinforced today by fresh financials, numbers that have sent the FTSE 250 firm’s share price 10% higher from Wednesday’s close.
In that statement Bank of Georgia advised that operating income rose 5.9% in the three months to September, to 285m Georgian lari, a result which powered pre-tax profit (excluding one-off items) 20.9% higher year on year, to 134.3m lari.
I’ve long championed Bank of Georgia’s long-term profits prospects as economic growth in the far-flung territory dwarves those one can expect in developed markets like the UK. But thanks to regulatory changes that have transformed the Georgian banking sector over the past year the country’s financial houses are on much safer ground than ever before, as higher-yielding yet higher-risk loan products are being weeded out of the system.
Growth + income
Many investors continue to turn their noses up at Bank of Georgia and prefer to invest in more familiar names like Lloyds and Barclays, but in my opinion they’re missing a trick here. Modernisation in the banking industry is clicking along at an impressive rate and this particular firm is investing heavily to push this forwards.
Take Bank of Georgia’s steps in the fast-growing world of digital banking, for example. It has doubled the size of its digital workforce over the past year and taken steps like installing dedicated digital spaces in its branches, launching its ‘Business iBank’ online platform, and consistently tweaked its internet bank and mobile app to capture customers. And the steps seem to be paying off, as seen in the 131% explosion in mobile banking transaction in quarter three.
No wonder, then, that City analysts expect earnings at the FTSE 250 business to swell 15% in 2020 alone. And there are two other reasons to celebrate this projection: as well as leaving Bank of Georgia dealing on a rock-bottom forward price-to-earnings ratio of 5.5 times, it leads to predictions of some scintillating dividend growth. Based on its rock-bottom valuation and its huge 6% yield for next year I reckon the banking behemoth is too good to miss.