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2 banking stocks at incredibly low prices

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Earnings multiples are currently relatively low across the banking sector but FTSE 250 banks Virgin Money Holdings (LSE: VM), BGEO Group (LSE: BGEO) and TBC Bank Group are the lowest of the lot. Are their incredibly cheap prices too compelling to ignore or too good to be true? Let’s look at two of them.

Rising challenger

Shares of Virgin Money climbed as much as 6% higher in morning trading today after the challenger bank released forecast-beating annual results.

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Underlying pre-tax profit of £273m was 28% ahead of the prior year and comfortably exceeded a City consensus of £259m. Underlying earnings per share (EPS) increased 22% to 39.8p versus forecasts of 37.5p. Statutory numbers weren’t much lower than underlying, as excluded costs were relatively small and genuinely one-off. As management noted, the bank is “unburdened by legacy issues.”

Customer balances continued to grow. At the year-end, retail deposit balances stood at £31bn, mortgage balances at £34bn and credit card balances at £3bn. The group is also developing SME and digital banking propositions, which provide additional drivers for future growth.

I like Virgin’s strong balance sheet, “uncompromising focus on asset quality” and very good efficiency metrics, which enabled it to deliver a healthy 14% return on tangible equity for the year. These qualities stand the group in good stead should the UK economy face headwinds. I believe the share price of 279p — representing a 6% discount to book value and seven times earnings — is too cheap to ignore. As such, I rate Virgin a ‘buy’.

No Brexit worries

Concerns about Brexit are doubtless a significant factor in Virgin’s depressed share price. However, the UK economy is not something to bother investors in BGEO, which is the holding company of the JSC Bank of Georgia.

The group released its annual results earlier this month, and performance reflected its leading position in one of Europe’s fastest-growing emerging economies. Strong growth across all its businesses produced a year-on-year increase of 23.7% in revenue and an 11.5% rise in EPS. City forecasts have earnings growth accelerating more than 20% this year, which puts the company on a forward price-to-earnings (P/E) ratio of under nine.

Demerger

BGEO has a significant corporate event in the offing. At a general meeting in April, shareholders will be asked to approve a demerger of the group into two separately London-listed businesses: a banking business, Bank of Georgia Group plc, and an investment business, Georgia Capital plc.

The former will comprise retail banking and payment services, corporate investment banking and wealth management operations, and banking operations in Belarus. The latter will comprise stakes in a number of businesses, including FTSE-listed Georgia Healthcare Group and a number of other plays on Georgia’s fast-growing economy, ranging from utilities and energy to real estate and beverages.

If you’re attracted by the favourable economic backdrop in Georgia you’d probably want to decide whether you’re interested in holding both a banking group and an investment group or whether only one or the other of them appeals to you. If you’re happy to hold both, you may want to consider investing today. If you only want one of them, you could still consider investing today but it would be simpler to wait until after the demerger.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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