Georgia Capital: In the business of building businesses in Georgia (initiation of coverage – NOT RATED)

Bank of Georgia Group’s investment arm, Georgia Capital (GCap), commences trading on 29 May, completing the demerger process with Bank of Georgia, which was initiated last autumn. GCap’s business is building new businesses in Georgia and, with access to capital and a proven management team, it is a unique vehicle through which to get exposure to this rapidly-growing economy in the Caucasus region, in our view. We expect GCap and its management to continue in the mould it has cast already, i.e., to identify sectors with significant growth potential and deploy a mix of private equity (e.g., M&A in the healthcare business, acquiring utilities and wine businesses) and classic entrepreneurial business styles (e.g., greenfield renewable energy projects, beverage distribution and a brewery under the Teliani umbrella). It will also require shareholders, in our view, to take a longer-term investment horizon: GCap rather intends to reinvest cash back into its businesses over dividends from current cash flows and divestments, although it does target remunerating shareholders through buybacks. Some investors may find the lack of yield support, or the country concentration, off-putting. That said, investors are also willing to pay a premium for the value-add of successful private equity management teams able to exploit opportunities that they cannot directly, and GCap, we believe, should be viewed in this light.