FTSE 250-listed Bank of Georgia Group (LSE:BGEO) has been one of the UK’s best-performing banking stocks of the past year. At £39.30 per share, the emerging market bank has risen an impressive 47% in value during the last 12 months.
Yet at current prices I believe Bank of Georgia shares look massively undervalued. As well as trading on a rock-bottom price-to-earnings (P/E) ratio, the firm’s dividend yield soars above the banking industry average.
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Here’s why I’m looking to buy shares in the bank when I next have cash to invest.
20% discount
At today’s prices, Bank of Georgia shares trade on a forward P/E ratio of 4.3 times. This reading is lower than the ratios of each of the London Stock Exchange‘s six biggest banks, as illustrated below.
| Company | Forward P/E ratio |
|---|---|
| Lloyds Banking Group | 6 times |
| Barclays | 4.6 times |
| NatWest Group | 5.6 times |
| HSBC Holdings | 6.2 times |
| Standard Chartered | 5 times |
| Banco Santander | 5.3 times |
The table includes UK high street banks Lloyds, Barclays, and NatWest, as well as other emerging-market-focused operators HSBC, StanChart, and Santander.
But just how undervalued are Bank of Georgia shares compared with those of its sector peers? Well the average P/E ratio across those six firms stands at 5.5 times for their current financial years.
To bring the Georgian bank up to that industry average, it would need to be trading at £49.40 per share. This suggests that the business is undervalued by a hefty 20%.
Huge dividend yield
That’s a pretty decent discount, in my opinion. But this is not all. Bank of Georgia’s sector-busting dividend yields increases its attraction as a value banking stock.
| Company | Forward dividend yield |
|---|---|
| Lloyds Banking Group | 7.7% |
| Barclays | 6.8% |
| NatWest Group | 7.3% |
| HSBC Holdings | 10.2% |
| Standard Chartered | 3.9% |
| Banco Santander | 5.5% |
The average forward yield for those six banks sits at 6.9%. Bank of Georgia, meanwhile, offers up a tasty 8.8% yield for 2024. Only HSBC, with its 10%+ dividend yield, beats the FTSE 250 company on this metric.
Why I’d buy Bank of Georgia shares
Buying banking shares can be risky in economically challenging times like these. Credit impairments can reach uncomfortable levels, while loan growth can stall as consumers and businesses tighten the purse strings.
But Bank of Georgia’s resilience in these tough times provides some reassurance going forwards. This is thanks to the ongoing strength of the Eurasian country’s economy, and the low rate of product penetration there, which is driving financial product demand.
The FTSE 250 firm’s latest financials showed operating income up 32% between January and September. This drove pre-tax profit 38% higher from the same 2022 period.
UK-focused companies like Lloyds can only dream of this sort of growth. And these favourable conditions are tipped to endure for Bank of Georgia over a long-term horizon, too.
I’m also encouraged by the bank’s plans to expand into other fast-growing regions. Just today (15 February) it announced its intention to acquire Armenia’s Ameriabank, giving it a foothold in another underpenetrated market.
While it isn’t without risks, I think Bank of Georgia is a brilliant value stock right now.
