Bank of Georgia - Looking Reinvigorated; BUY

Bank of Georgia (BGEO) published a good set of 3Q19 results yesterday. They further support our sense that the bank has been rather reinvigorated under the new CEO, who took over in January, and his revamped team (seven of 14 in the senior management are new). We are seeing this in vibrant loan and fee income growth, as well as solid progress in digital initiatives. The transition to a lower-NIM, lower-risk and more capital-efficient business looks like it should be more or less completed by the year end, while underlying profitability looks set to remain strong heading into next year (we see 22% ROE in 2020). For much of this year, BGEO's stock has been under pressure from a combination of factors, including regulation, Georgia's dispute with Russia, TBC Bank's owners' legal disputes hurting the equities investment climate, and lari weakness pushing up inflation and rates. However, despite the headwinds, the economy's performance remains robust. We expect GDP growth of 4.3% this year and 4.5% in 2020, supported by a thawing of relations with Russia and a modest recovery in the lari. Overall, we see enough positives to move BGEO from HOLD to BUY, as we push up our 2020-21E EPS by 3% per year while trimming our target price to GBP19.00 on higher cost of equity.