Bank of Georgia (LSE:BGEO) shares have gone from strength to strength following Russia’s invasion of Ukraine. The invasion caused the share price to tank, and for me, this was a buying opportunity. Having considerable exposure to Russia and Georgia in my personal and professional life, I contended that the risks were overstated.
And so far, I’ve been correct. The bank is doing well and the Georgian economy is continuing to grow rapidly — 9.2% in 2022, and 5% in 2023, according to the Bank of Georgia’s H1 report, which was published today.
But I’m still bullish on Bank of Georgia, and I think it can go higher. So let’s take a closer look at this stock and its recent performance.
H1 earnings above expectations
Bank of Georgia shares shot up 5% on Tuesday after it announced better-than-expected first-half results. Pre-tax profits of GEL574m were 53% higher than in the first half of 2021.
Profits were boosted by forex gains while there was steady growth in net loans of 4.3%. The burgeoning tourism sector enabled Bank of Georgia to leverage its position as the largest payments business in the country. Increasing interest income also spurred the growth forward.
Meanwhile, credit trends remained positive, with the cost of risk in Q2 at 0.6%, below the first quarter level of 0.8%
Analysts at Peel Hunt said “the outperformance in terms of FX gains will lead to increases in our full year pre-tax profit estimates of more than 10%“.
Outlook
In its earnings report, Bank of Georgia highlighted Galt & Taggart’s revised 2022 real Georgian GDP growth forecast of 9.2%. That’s considerably above previous estimates.
While Russia and Ukraine are two of Georgia’s biggest trading partners, the Georgian economy is continuing largely unhampered. Tourism revenue is actually above pre-pandemic levels, and Tbilisi is filled with Russian emigres. Georgia is also becoming increasingly popular with tourists from the Middle East.
Why is this important? Well, the bank’s performance is pretty reflective of the state of the Georgian economy. I consider Georgia to be one of the most stable high-growth markets in the world and that’s one reason why I’m bullish on this bank.
Valuation
The bank trades with a price-to-earnings (P/E) ratio of just five. That’s incredibly cheap. In fact, in May, the bank was trading with a P/E of just three — the share price has since risen considerably. But I think the cheap valuation largely reflects concerns about investing in a lesser-known economy.
It’s also worth noting that the bank traded in excess of the current share price before the pandemic. While 2020 was a bad year for Bank of Georgia, the fundamentals have continued to grow year over year, with that one exception.
I accept that a global economic downturn could slow Georgian growth next year and this wouldn’t be good for Bank of Georgia, but I’m still pretty bullish, especially in the long run. At the current price, I’d still buy more. It also has an attractive dividend yield, of around 5.5%.