Bank of Georgia - Profitability Strong, but Capital Position Weakens

Bank of Georgia (BGEO) has published 3Q18 results and will hold a conference call at 13:00 London time. Overall, we see the numbers as neutral to very slightly negative given capital weakening. Among the positives, the bottom line beat expectations (mainly on FX revenues) and ROE stayed very strong at over 25%, with fee income recovering and decent mortgage and corporate loan growth. Among the negatives, NIM was weaker than expected, and the capital position deteriorated strongly on a combination of a dividend payout and lari weakness. Underlying profitability remains very robust at 25% or so ROE, which should lead to an improvement in Tier 1 in 4Q18, but further lari weakness could add pressure. The risks related to minimum regulatory buffers lie more on the total T1 side (expected required minimum of 11.4% at end-2018) than the CET1 side (expected minimum of 9.5%), which implies possible AT1 issuance as a first consideration. We are waiting to hear what the management has to say about this on the call. The stock is trading at a 2018E P/BV of 1.4 and 2019E P/E of 5.9.