The FTSE 250 has been a great place to find discounted stocks this year. The index is still down 15% despite surging after Rishi Sunak came into No. 10.
Much of the turmoil has been created by Russia’s invasion of Ukraine and the associated impact on energy and commodity prices.
And one stock that was hit hard earlier this year was Bank of Georgia (LSE:BGEO) — one of two Georgian banks listed on the index.
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The Georgian bank plummeted with investors worrying that the war in Ukraine could spill over into Russian-controlled regions of Georgia and a slowdown in trade. Russia and Ukraine are among Tbilisi’s biggest trading partners.
However, I contended the risks were hugely overplayed and invested in Bank of Georgia in April. Since then, the share price has soared as the Georgian economy has gone from strength to strength. A small part of this economic surge is related to the Russian emigres dodging the draft in Tbilisi.
In November, Bank of Georgia reported a rise in third-quarter pre-tax profit to £103.2m, with its performance underpinned by wider growth in the Georgian economy. The Q3 figure represented growth of more than 33% year on year.
So, will it continue?
Bank of Georgia now trades for just over £25. But, the stock doesn’t appear expensive when looking at several metrics.
The price-to-earnings ratio of 3.9 suggests that the bank is still relatively cheap. This figure is less than all its UK peers. The industry average, including more expensive US banks and those focused on eastern markets, is 9.4%.
Discounted cash flow modelling also suggests the company’s share price could extend further in the coming years. And a poll of analysts implies that the share price could reach £32 in the medium term.
Personally, I agree. And I’d also contend that Georgia is among the safest, fast-growing economies for my money. Despite what many people may think, the nation is a western-facing democracy with an openness to foreign trade and investment.
In the near term, Georgia’s second-largest bank is benefitting from higher interest rates. Net interest margins rose 30 basis points year on year to 5.3% in the last quarter.
In November, the National Bank of Georgia maintained its key interest rate at 11%. But that’s not to say it won’t rise further in 2023. Inflation appears to have peaked but remains relatively high, driven by a Russian immigration boom.
What are the risks?
Even if Bank of Georgia performed exactly the same as a UK-based peer, it’s share price would likely be discounted against the British institution. That’s because investors are typically risk averse.
Sometimes concerns about risk can be misplaced. And, personally, I believe this is much the case with Bank of Georgia.
However, the nation and the bank face challenges that are currently common around the world. While the economy is booming now, inflation could engender a cost-of-living crisis and raise bad debt levels within the bank.
So, will Bank of Georgia push higher in 2023? I think it will. As such, I’m buying more.
