FTSE 250 stock TBC Bank (LSE:TBCG) is not exactly a household name. And with a market cap of £1.5bn, it’s some way down the list of the UK’s 250 largest companies.
But a 7.7% dividend yield is only half the story here. A consensus of analysts have set a whopping 40% higher price target on the shares, which now trade around 2,800p.
To be continued
Both revenue and net profits are expected to climb 25% higher by 2025.
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As of 21 February 2024, the shares trade on a price-to-earnings (P/E) ratio of less than four. That’s substantially lower than the P/E average of 5.3 for UK-traded banks. And to my mind, it makes TBC shares pretty cheap right now.
Fitch, one of the world’s largest ratings agencies, upgraded TBC Bank’s credit rating in May 2023. It moved up from ‘BB-’ to ‘BB’, which means it can get better rates on its own credit.
Fitch added that TBC Bank’s “strong performance” through a series of tough economic cycles meant it merited the upgrade.
Part of the improvements the business made were increasing profitability and the fact that it had large amounts of liquid capital on hand.
King Georgia
TBC Bank operates in Georgia, where economic growth is flying higher. The World Bank found in December 2023 the country was growing at 8.3% a year. Companies in construction and manufacturing are driving this spike.
And with these businesses likely needing more startup and ongoing capital to take advantage of booming markets? TBC Bank has a broader base for its loans and revenue.
Georgia has also been growing more quickly than other middle-income countries. That’s probably why analysts are so bullish about the potential for this FTSE 250 stock.
Deep value
All the value metrics I watch closely are in the right range to make TBC Bank a buy now. Its price-to-earnings growth is at 0.3, with anything under one considered good value.
The bank is forecasting earnings per share to grow nearly 15% next year.
And while the dividend will fall from 9.34 GEL (Georgian lari) to 7.04 GEL in 2024, analysts expect an 18% bump over the following 12 months.
Risk factors
Economic growth is never guaranteed. And as a middle-income country, Georgia does not have the same levers that high-GDP countries could pull to reverse course.
Georgia’s position on the Black Sea also means it borders Russia and is a near neighbour to Ukraine. Anyone following the news for the last two years doesn’t need me to tell them the heightened risk factors there.
There is some exchange-rate risk to note, because the company reports its earnings in Georgian lari, rather than pound sterling. If the lari were to crash, TBC Bank’s profits would go the same way.
All that said, the country’s growth story, along with the bank’s rising profits, and a 7.7% dividend yield?
I think it’s starting to make TBC Bank look quite compelling.
