By Sally White for Investor.ge
To borrow a concept from Warren Buffet, “Mr. Market” has decided that demand for the shares of Georgia’s leading banks—TBC Bank Group (TBC) and Lion Finance Group (LFG, Bank of Georgia Group’s new name)—merits sharp rises, and these have been world-beating. Each bank has attracted growing international fund interest, thanks to strong performance, fintech-driven investor appeal, and Georgia’s economic growth—factors that seem to have outweighed concerns over domestic unrest, sanctions-related political risks, and the country’s proximity to Russia.
The international investment background has been auspicious for the two London stock market quoted banks, with their sector in favor. Many major international banks saw their share prices rise by double digits last year, the STOXX® Europe 600 Banks index climbing 26%, outdistancing other industry sectors, as they cut costs, ramped up technology use, and diversified. That was deemed to help offer an investment haven from Trump’s tariff blitz in other industries.
“The logic includes points like a steepening [yield] curve, solid shareholder returns, and a recent set of pretty strong recent earnings results, with valuation that is still reasonably relatively attractive that should provide some support,” says Trivariate, a New York financial research group commenting on the banking sector.
The Georgian banks, undervalued by their international banking peers despite consistent excellent long term trading performances, have been attracting a lot of attention on the stock-selection screens of international investment newsletters, and in the media. The story, as told by respected UK financial publication The Investors Chronicle (IC) earlier this month, was that its screens – from Have It All to Great Expectations, Acquirer’s Multiple, Genuine Growth, Safe Yields, and Strategy Screen – were regularly selecting LFG and TBC.
“It’s not hard to see why both banks regularly meet our screens’ criteria. Improving margins and surging earnings have not resulted in any sizable re-rating beyond the stocks long-term trading averages of less than five times profits. These are cheap, growing, high yielding investments,” the IC states. So, it has written up the shares, despite references to condemnation of the country’s governance from Transparency International. This kind of coverage is a big encouragement for private retail investors, whose steady, if small, buying has helped fuel the share price rise.
Sentiment has improved on world stock markets where the bank shares are traded. Funds, which had reduced holdings in 2024 when Tbilisi demonstrations against the government’s choice to suspend its EU membership bid erupted—drawing peak-time international TV coverage—have bought them back this year.
Innovation and expansion
The Georgian banks have been able to tell an extremely good story, fueling a performance that way outclassed that of their international peers. Shares of LFG have risen by 40% over the last six months and nearly 500% over the last five years, according to financial website Simply Wall Street, and those of TBC are up by nearly 50% and over 500% in those time periods, according to London broker Hargreaves Lansdown.
Both banks have invested heavily to move much of their business online to digitalize, cut costs, extend their portfolio of services, and diversify geographically (TBC by growing virtual banking in Uzbekistan and LFG with the acquisition of a major Armenian bank). Both have highly commendable returns on equity (over 25%), generating confidence in their capacity for future profits. Both offer attractive yields (around 5%) with high dividend expectations, and both have outperforming net margins and low valuations. Yet both are cheap on international comparisons.
Significantly, both have invested in strong and experienced international investor relations teams to market to analysts, fund managers, and the media, capitalizing on their excellent financial results. The handful of analysts following the banks have been guided to steadily raise their revenue expectations and voice positive forecasts, regularly lifting their share price targets as the banks’ profits and prospects rose.
None of the consistent supply of good stories—giving high visibility into the groups’ growing activities and profits—go to waste, and market sentiment is positive. Both banks also have also been doing on-going share buy-backs, spending millions of pounds, supporting their share prices and ratings.
Global investors take notice
Their strategies have enabled the banks to develop into big FTSE 250 constituents with major international, blue-chip, supportive shareholders such as, in LFG’s case, JP Morgan Asset Management (5.5% of voting rights), Dimensional Fund Advisors (4.3%), Black Rock (4.2%), Vanguard (3.8%), and M&G (3.3%). These have been long-term supporters and do not fear investing in the developing world, or frontier markets. But this year a new major shareholder appeared in the annual financial report in the form of Helikon Long Short Equity Fund Master, an Irish incorporated equity hedge fund, which took a 5% stake, accumulating 2.2 million shares, helping drive the price.
Detailing its major plus points, LFG commented that: “… in 2024 the loan book grew by 19.3% YoY in constant currency, underpinned by sustained demand across segments. Operating income growth was solid at 11.5% YoY for the full year. Asset quality remained robust, with cost of credit risk for the full year at 0.4%. This translated into a record profit of GEL 1.6bn (up 14.9% YoY), with ROAE standing at 33.5%.
“Additionally, the market has been very welcoming of our transaction in Armenia: we acquired the leading and the top-of-mind bank at an attractive valuation, and we believe we can leverage our best-in-class digital know-how, curated in Georgia, to drive higher growth in Armenia. The transaction was around 20% earnings accretive on day one and the Armenian business now accounts for 25% of our total assets.”
It further notes: “The market is beginning to acknowledge our exceptional performance on the digital front. Last year Global Finance Magazine named us the best digital bank in the world! We beat regional leaders Santander (Europe) and DBS (Asia) to the top spot globally. Additionally, we have two million monthly active users (which grew by 11% YoY), of which 1.6 million are digitally active (+ 18% YoY). We sell 62% of our products digitally, we have a 57% market share in merchant acquiring (payments) and our Net Promoter Score is 67, which is up there with the ‘love’ brands.” (A marketing term to donate brands that have captured the minds and hearts of their consumers).
TBC also commented on its increasing attraction to tech-minded funds. The “main area in which our shareholder register is changing is a rising share of growth/fintech investors excited by our (digital) story.” TBC is increasingly positioning itself in announcements as a digital bank, the numbers in its latest quarterly press release being that “among the (2025) target indicators, the group expects seven million monthly active digital users (Digital MAU), including more than 5 million in Uzbekistan. In 2024, Digital MAU in Uzbekistan was 5.9 million (+37.2% YoY), and in Georgia it was 1.1 million (+14% YoY).”
Major institutional shareholders in TBC are also a mix of funds which have been there from the launch on the London Stock Market, but the recent appearance in the top holdings list of JP Morgan and Blackrock has undoubtedly been a contributor to TBC’s share price rise. This list now reads: Dunross & Co (6.8%, as of end 2024), Vanguard (4.2%), Allan Gray (3.9%), Schroders (2.1%), JP Morgan (3.7%). And there are newer names attracted by the digital growth story, such as Kora, Wasatch, and Barca. The holdings of the major funds have fluctuated, and this year Fidelity International increased its stake, according to its annual financial report, from 3% to just over 5%, and BlackRock has just announced a rise of over 1% in its total stake up to 6%. This has also helped balance the Allan Gray reduction in its shareholding and the exit from the top list of the EBRD.
In his April statement, TBC CEO Vakhtang Butskhrikidze stated that: “2024 was a year of scaling up our business and expanding the products and services we offer our customers. We are growing fast, and profitably. Our loan book has more than doubled year-on-year to GEL 1,758 million (USD 626 million), while our revenues and net profit increased by 99% and 86% year-on-year, respectively, to GEL 414 million (USD 152 million) and GEL 110 million (USD 41 million). In Uzbekistan, we are now generating excellent returns – 26.9 % ROE and 7.2% ROA, despite investing heavily in new products, back-end infrastructure (such as our state-of-the-art data processing centre and generative AI projects) and fintech talent.”
Georgia’s growth outlook
Georgia’s economic prospects look, for now at least, attractive, driven by fast-recovering tourism numbers, the Ukrainian war boost to goods transit, migration and trading (and, in the background, undoubtedly the growth of the black economy). LFG’s reading of the numbers is that:
• GDP per capita has doubled in the last four/five years – exceedingly strong output growth in a global context.
• Future potential for growth remains high; GDP per capita at c. USD 9,500 compares to a regional average (Central and Eastern Europe) of USD 17,000.
• The current growth performance and outlook remains strong; 1Q25 GDP expanded by 9% (prelim) and the market, once expecting c. 5% growth for 2025, is slowly revising upwards expectations (now c.7% on average).
• Bank lending remained strong during 1Q25, increasing by 16.6% YoY on a constant currency basis, following 17% YoY growth in 2024.
A positive view from international research house Edison, whose view on the economy comes via coverage of investment group Georgia Capital, is that “Georgia’s economy continues to exhibit strong momentum, with Q1Y25 GDP growth reaching 9.3%, following 9.4% for the full year 2024”. It adds: “While the International Monetary Fund projects a moderation to 6.0% growth for 2025, this still reflects a healthy expansion. Unemployment has fallen to a record low of 15.2%, and the country benefits from resilient foreign exchange inflows, supported by robust tourism receipts and sustained remittances since Russia’s invasion of Ukraine in 2022. The combination of solid macroeconomic fundamentals and a gradually stabilizing political environment is enhancing investor confidence.”
However, such confidence is not universal and there have been questions raised on the underlying statistics used in government forecasts by leading Georgian economists. They have commented, too, on the lack of stabilizing capital inflows and of industrial and manufacturing development and the huge need for imports, even in food. The heavy economic reliance on volatile tourism and trading makes them concerned. And, while acknowledging Georgia’s strong policy framework and other points of superiority in the region, the international credit rating agencies have responded to the effect of “political volatility on investor confidence” by decelerating their forecasts for Georgia’s real GDP growth.
The World Bank projects Georgia’s growth to slow to 5.5% in 2025 and converge to 5.0% over the medium term, reflecting weaker consumption and investment. It further cautions: “…structural challenges persist, notably weak productivity and limited high-quality job creation. About a third of workers remain engaged in low-productivity agriculture. Georgia also has a large share of self-employed people in other sectors. Access to finance remains a major obstacle for small and medium-sized enterprises (SMEs), while skills mismatches are reported to be an impediment for most firms. Due to its high degree of trade openness and dependence on tourism, Georgia is vulnerable to external shocks.”
The London share price of TBC is currently 4,610p, some profit-taking bringing it down from its recent 4,860p high, but investor buying has left it a long way up from last year’s 2,264p low. Analysts’ consensus rating, according to Value Investing, is a “strong buy” and the median share price forecast is 4998p. LFG, now at 6275p in London, has a one year share price range of 3,550p to 6795p. It lists its latest broker-target high as 9068p, with an average of 6816p.
Currently, therefore, market sentiment on the two banks seems to ignore the cautions and is “risk on.”
