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Seems like they began with buybacks on Friday - which is something they announced on 2020 results presentation.
Just a few shares for now but if CGEO believes it is undervalued at 0.4 or 0.45 P/NAV, then it should be a no-brainer to buy as much as they can. Management's incentives seem to be aligned with shareholders.
Capital allocation outlook
The Group maintains a highly disciplined capital allocation approach through 360-degree analysis to unlock value through investments and explore opportunities with high returns. Georgia Capital expects to allocate US$ 50 million net equity capital in investment stage portfolio companies (Renewable Energy and Education) over the next 3-5 years, of which US$ 10 million is expected to be allocated in 2021. Other than our already identified greenfield projects in the Renewable Energy and Education businesses, the Group now expects to focus on acquisitions, rather than new greenfield projects. By driving the development of these two businesses, the Group expects to realise at least 2x multiple of invested capital (“MOIC”) at each investment level, 20%+ IRR in Renewable Energy and 25%+ IRR in Education:
Over the next 3 years, Renewable Energy will be launching pipeline projects (wind farms in Tbilisi and Kaspi, Zoti HPP and Darchi HPP), increasing its run-rate EBITDA earnings to GEL 122 million from the current GEL 45 million.
The education business is expected to scale up to a capacity of 21,000 learners from the current 2,810 learners through expansion plans in existing schools and targeted acquisitions, by 2025. Over that time period, the run-rate EBITDA is expected to grow from the current GEL 10 million to at least GEL 50 million.
In addition, the Group will continue to consider the divestment of low ROIC and/or non-core assets across its private portfolio.
By driving the development of its defensive, high quality assets with strong and growing cash flow streams across its large and investment stage portfolio companies, Georgia Capital expects to create long-term value for its shareholders and drive NAV per share growth.
A full set of the presentation slides will be available on the Georgia Capital website at the end of the event at www.georgiacapital.ge.
Georgia Capital PLC (the “Group” or “Georgia Capital”) is today hosting a Virtual Investor Day for analysts and investors. As part of the investor presentations, the Group will update investors and analysts on its strategic goals and priorities as summarised below.
Update on strategic priorities announced in 2019
In 2020, following the buy-out of minority shareholders in GHG, the Group achieved its previously announced strategic priority to reduce the share of listed assets in the Group’s investment portfolio to 20% - listed assets comprised c.15% of the total investment portfolio value as of 30-Sep-20.
Third-party money raising has been put on hold due to COVID-19 outbreak, however, the Group expects to resume efforts, as markets normalise.
Enhanced strategy for 2020 and onwards
The Group has introduced an enhanced strategy, where Georgia Capital will focus on larger scale investment opportunities in Georgia, which have the potential to reach at least GEL 0.5 billion equity value over the next 3-5 years and to monetise investments through exits, as investments mature. This larger size will provide improved liquidity and improved exit opportunities, to support the Group’s desire to reduce the current discount to reported NAV per share.
The group will now focus on a new breakdown of its private portfolio companies, ranking them as Large, Investment Stage, and Other portfolio companies:
Large portfolio companies (64% of total portfolio value at 30-Se-20) are companies that are close to reaching a GEL 0.5 billion+ equity value. These are growing, market leading, cyclically resistant businesses: Healthcare Services, Retail (pharmacy), Insurance (P&C and Medical) and Water Utility.
Investment stage portfolio companies (12% of total portfolio value at 30-Se-20), being Renewable Energy and Education, have the potential to reach a GEL 0.5 billion+ equity value. The Group will be investing only in these two non-cyclical businesses over the medium term, to scale up them and drive value creation going forward.
The remaining 9% is spread across the five companies in the private portfolio, which the Group currently believes offer less scalable growth potential (“other portfolio companies”). Housing Development, Hospitality and Commercial Real Estate, Beverages, Auto Service and Digital Services businesses are included in the “Other” category.
Accordingly, Georgia Capital has adapted its reporting format and moved to quarterly reporting with greater focus on its large and investment stage private portfolio companies.
New strategic priorities
In line with the enhanced strategy, Georgia Capital has introduced two new strategic priorities:
realise the value of one of the large portfolio companies, through a trade sale, over the next 18-24 months;
divest the subscale portfolio companies over the next 2-3 years.
Thanks - yes always good to consider the downside - very wise! I too have a small investment here.
On materials and supplies I guess you've already seen the 1Q2020 breakdown (from when GHG reported separately).
Cost of materials for hospitals only a small increase at 13.6m GEL for 1Q2020 (compared to 13.0m in 1Q2019).
I appreciate that your post made me look more carefully at this point! To me it seems there is room for currency-driven inflation in that figure without doing anything too bad.
There is a currency impairment for 1Q2020 of 4.2m GEL, but if I understand correctly that accounts only for currency changes between the time of invoice and payment, so if currency has bottomed out then that number goes away.
But I agree with your concern for the top line - if citizens have no money it will be hard to get the hospitals back to solid profit - particularly if the government feels the need to cut subsidies. I guess this share is very much a bet on recovery, as we've always known.
Yes, the healthcare rules are already in force, I know. What I'm saying is that this looks like a sign that things will gradually change for the worse.
Now it is government capping prices on heart surgeries. Next time it will be all surgeries, then capping prices in pharmacies, then water utility, then electricity, then sector tax on banks...
Possibly this change (Regulation 520, surgery prices) is already priced in. Also afaik they sold one of their hospitals recently, this could've been a large part of their reasoning.
What isn't priced in? The local currency (GEL) dropped from 2.6 GEL/USD in February 2019 to 3.4 GEL/USD in November 2020. As 99% of CGEO revenue is in lari, this in effect means 30% lower USD-buying power of the locals and possibly 30% lower revenues. With no improvement in sight.
I'm invested in the company, I really want to like it. However, I also want to know what I'm missing. At current valuations (4-4.5 GBP/share) it is almost priced for bankruptcy or priced for total revenue collapse of 50%+. If there were no further bad news, GEL strengthens and tourism recovers in 2021, this company can basically earn it's entire market cap as net profit in 12-18 months. It is insane.
Yes, the healthcare rules are already in force, I know. What I'm saying is that this looks like a sign that things will gradually change for the worse.
Now it is government capping prices on heart surgeries. Next time it will be all surgeries, then capping prices in pharmacies, then water utility, then electricity, then sector tax on banks...
Possibly this change (Regulation 520, surgery prices) is already priced in. Also afaik they sold one of their hospitals recently, this could've been a large part of their reasoning.
What isn't priced in? The local currency (GEL) dropped from 2.6 GEL/USD in February 2019 to 3.4 GEL/USD in November 2020. As 99% of CGEO revenue is in lari, this in effect means 30% lower USD-buying power of the locals and possibly 30% lower revenues. With no improvement in sight.
I'm invested in the company, I really want to like it. However, I also want to know what I'm missing. At current valuations (4-4.5 GBP/share) it is almost priced for bankruptcy or priced for total revenue collapse of 50%+. If there were no further bad news, GEL strengthens and tourism recovers in 2021, this company can basically earn it's entire market cap as net profit in 12-18 months. It is insane.
I don't know. But is your understanding that these rules are already in force? In which case the market has already priced these effects in when looking at 2020 reports to date.
No need to call me Mx, haha...
These issues are "historical" if you want to call them that. However, in 2019 the reform's impact were brought to light and I think the minister of health claimed it is fine and it will be addressed maybe in 2020. Noone addressed them anywhere, they aren't mentioned in GHG Q1 or Q2 earnings call. Then COVID came and the situation seems to be worse now. I'm not even including election results into that.
https://commersant.ge/ge/post/ocdaeqvss-minus-erti-djandacvis-satarifo-reforma-romelic-mxolod-eveqsistvisaa-misagebi
You can check the table in the article. As an example, first item should be "coronary arteries surgery" where price was 11925 GEL - that is 6893 USD in 2013 exchange rates but only 4029 USD in 2019. Now it was regulated/capped at 8500 GEL which is 2522 USD at 2020 rates. That is one third of the former prices.
Most of the materials required for such procedure is bought abroad so you have USD expenses (perhaps you can buy something in Turkey, their lira is even weaker now, I dunno) and revenues at one third of what it was in the past.
Also they claim the universal healthcare system funding works on a net-180 basis (hospital gets the payment with a 6 month delay).
For some reason this is targeted at cardiology / hearth procedures, so it won't impact clinic or pharmacy operations. However, how can you trust the government in a country where such changes happen. This time it is cardiology, next time it will be restriction on pharmacies or real estate...
Mr/Ms/Mx GSDSITGS aren't these historical issues from 2019 that you're referring to?
Does anyone have more detailed information about the "520 resolution" and its impact on GHG?
https://bm.ge/en/article/resolution-520-is-absolutely-unprepared--khechinashvili-university-clinic/44704
Apparently there are upper limits put on certain medical procedures. Also GEL devalued to extreme values in the last 9 months (against EUR it is comparable with other currencies, against USD it is strangely and unreasonably low) and I cannot imagine how hospitals with foreign expenses (imported specialized material) will be able to stay profitable.
I found interview with a local doctor, Anzor Melia, which made me even more confused. He said hospitals will go bankrupt. A group of 20+ local healthcare providers signed a petition against the reform and the only group that didn't sign it was Evex (GHG), he added that "and you know who owns that" (well afaik it is public... what is he referring to?). Add to that that his son is an opposition politician who was arrested last year because of protests, now this week GD won the elections.
It is difficult to find any relevant information, I found an interview from local media, video in Georgian...
BGEO will probably be fine, they made huge write-offs in Q1, probably more than necessary. Other business parts also don't look bad, especially energy looks fine. I'm worried about the biggest part, healthcare.
Is this so cheap
Blue blue blue. Looks good. So cheap at the moment :)
Not a great set of numbers here, 32% fall in NAV. However, when you consider the share price, which was already cheap, has fallen almost 60%, and that the share price is at a 66% discount to NAV, this is ludicrously cheap.
more blue trades now than red trades ,hoping for a move up
Seems a good update to me with active business and loans repaid. A healthy economy with the national bank able to increase interest rates to curb inflation. Sounds like a normal functioning system!
Agreed
https://moneyweek.com/512806/adventurous-investors-should-head-for-the-frontier-in-georgia/
Seems to go up and down on macro issues such as exchange rate, some weak holders also from the BGEO split a year ago. Bear in mind that the company (like the country) is growing and our shareholder remuneration is in buybacks not cash, should work well in the end as earnings will be spread over fewer shares. I averaged down a few months ago at £9.90 or so, bear in mind - I didn't - that liquidity is poor at the start of UK trading so spread is sometimes wider.
A good article confirmed my take for investment case when published on 9/8: Head for the frontier in Georgia by David Stevenson.
That RNS went completely un noticed
taking 5%, that's a vote of confidence in Georgia
Does anyone have any views on the reasons behind todays drop in sp
Thanks Queen, I spoke to my broker and they said trading was stopped due to corporate action, but it's back on line now, so all good. Think i'll sit on my hands for now, feel this has got quite a way to go still. GL
My broker simply said it is not something they think is suitable for a retail investor which is a bit of a shame given the rise in price today. They are allowing sells of any allocated as part of the demerger process. I think I need a new broker or big bad John to have a word with them for me.
Anyone got any views on this? I tried to buy some more today but my platform doesn't recognise the ticker now. Are we locked out until the buyback is complete and the premium price has returned to what it was before the buyback.
The country not the state in the USA is going places http://georgiauk.com/feelit/ BGEO Bank Of Georgia Group Plc CGEO Georgia Capital Plc GHG Georgia Healthcare Group plc GEO Georgian Mining Corporation