Georgian Banks: Life after the first dose (TBC Bank Group upgraded to BUY, Bank of Georgia stays HOLD)

In this report, we include a Q&A on recent themes in Georgian banking. We are have increased our price targets (PT) for both banks, and upgraded TBC Bank Group (TBC) to BUY (new PT, GBP 14.3/share). We believe TBC’s valuation is undemanding at 4.5x P/E and 0.86x P/TBV for 2021E at an intrinsic and relative value level. The momentum in the economy, as well as diminishing risks on the asset quality and capital fronts, are supportive for our call, in our view. Because the banks are not entirely out of woods in terms of CET1 levels, we set a high bar for valuations. We keep Bank of Georgia (BGEO) as a HOLD (new PT of GBP 15.0/share, 1.0x P/TBV and 5.6x P/E for 2021E). In our view, BGEO’s valuation is not outright expensive. Yet, it is also not as cheap as we would like compared to TBC. Instability in the macro environment and a rapid deprecation in the GEL now look less likely but are still the main risks for both banks. The upside risk scenario is for GEL rates coming down over time, leading to a lower carry on the GEL and therefore lower COE.