Buy stance18 Dec 2014 18:00
Buy: Bank of Georgia
Placing may lead to dilution but also promises enhanced growth
Thursday 18 December 2014
We are sticking with Bank of Georgia (BGEO) despite a dilutive placing announced on 4 December.
The bank placed 9.9% of its shares (3.6 million) at £20.25 each, raising £72.9 million, before expenses and its shares fell to £20.65 from £22.26 on the same day.
The proceeds will be used to strengthen its position as the country's largest bank by assets, lending and deposits as well as adding value outside of its core business. The bank is a market leader in an economy forecast to grow 5% this year, according to the International Monetary Fund (IMF). In October, Bank of Georgia owned 31.6% of Georgia's banking assets, 32% of the country's loan book and was home to 27.5% of its deposits.
The £664 million cap provides corporate, retail and private banking to 1.4 million people. It also offers brokerage, insurance and healthcare services through its 217 branches and a call centre.
Spend, spend, spend
Bank of Georgia intends to strengthen its network and offering and as such the proceeds of the placing will fund several acquisitions.
The bank will pay $51 million for Privatbank, Georgia's ninth largest bank by assets. The deal will add 400,000 customers to Bank of Georgia's network, an additional 3% share of the retail banking market, 93 branches and GEL500 million (£174.6 million) of assets. Once completed the acquisition will, according to the bank, extend its national reach and provide cross-selling and funding opportunities. The target business also focuses on credit cards, an area where Bank of Georgia is weak.
The Tbilisi-based bank will also spend $52 million buying 25% of water company Georgian Global Utilities. The business has the capacity to generate 143MW of hydro-electric power and the deal includes the option of increasing its stake to 49.9%. Finally, hospitals will be in its sights to beef up Aldagi - its healthcare business - ahead of the division's planned initial public offering (IPO) in 2015.
New focus
Bank of Georgia has unveiled its 4 x 20 strategy. The bank is targeting a 20% return on equity from its banking operations, keeping tier 1 capital growth above 20% (currently 22.7%), a 20% improvement in retail lending and the generation a 20% internal rate of return for each of its investments.
Numis' number crunchers forecast pre-tax profits growing 23.8% in 2015 to GEL373.9 million (£130.6 million), this rises 19.4% to GEL446.6 million a year later. Bank of Georgia is to pay GEL1.95 (68p) a share dividend this year, according to Numis' estimates, and GEL2.54 (88p) a share in 2015. This puts the stock on 3.7% and 4.8% yields, respectively.
Earnings per share (EPS) estimate of GEL7.03 this year, or 254p, puts the bank on a 7.3 times price to earnings (PE) ratio. Its GEL8.84 (308p) EPS estimate for 2015 puts the bank on 6 times earnings.
Growth: High
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