Georgia Banks - Knocking Out Strong Numbers, But Risks are Rising
Both Bank of Georgia (BGEO) and TBC Bank posted strong 2Q18 numbers that exceeded our expectations, with underlying ROE of around 25%. While the fundamentals look in good shape, we think 2H18 could be more challenging, as Turkey's economic problems are far from resolved, which we think will add to the typical late-year pressure on the lari, pushing risk costs up and capital ratios down for these banks. While we appreciate the resilience of these banks, the current multiples that they trade on look attractive, but not compelling, particularly versus regional peers. BGEO's recent selloff and rapid rebound suggest these stocks could be pretty volatile until some sort of resolution emerges from Turkey. While there is still much to like about these banks, the near-term risk/reward balance leads us to err on the side of caution, and we retain our HOLD recommendations for both names, increasing our COE by 100 bps (to 16.5%), and dropping our target prices to GBP20.25 for BGEO and GBP19.25 for TBC Bank.
BGEO Group is a holding company. Together with its subsidiary, JSC Bank of Georgia (the Bank) and other subsidiaries, Co. makes up a group of companies that provide banking, insurance, real estate, utility, leasing, beverage production and distribution, brokerage and investment management services to corporate and individual customers. Co. has two operating segments: banking business, which comprises: retail banking and payment services, corporate investment banking and wealth management operations and banking operations in Belarus; and investment business, which comprises Co.'s stakes in Georgia Healthcare Group PLC, Georgia Global Utilities, m2 Real Estate, Aldagi and Teliani Valley.
TBC Bank Group is a holding company. Through JSC TBC Bank and its subsidiaries, Co. is engaged in universal banking operations that include corporate, small and medium enterprises, retail and micro operations within Georgia.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.