Shareholders in this FTSE 250 bank have endured a tough year. The Bank of Georgia (LSE:BGEO) share price has fallen considerably since Russia’s invasion of Ukraine in February. But the falling share price belies some very positive performance data. So, here’s why I’m backing this FTSE 250 bank, with a very attractive price-to-earnings (P/E) ratio, for my portfolio.
Valuation
The P/E ratio is a metric for valuing a firm based on its stock price and the earnings per share over the trialing 12 months or last reporting year. Based on the current share price and financials for the year ending December 31 2021, the Bank of Georgia has a P/E ratio of just 3.18. That’s very low, particularly for a financial services company. In fact, it’s so low that it feels to me like something must be wrong.
The P/E figure reflects the bank’s earnings per share of 364p for 2021 and the current share price of 1,160p. More broadly, we can see that the Bank of Georgia has a current valuation of £544m while delivering £192m in pre-tax profit last year.
Why did the share price fall?
The share price fell following Russia’s invasion of Ukraine and the subsequent introduction of Western sanctions against Moscow. Despite a troubled relationship with its northern neighbour Russia, along with Ukraine, they’re two of Georgia’s largest trading partners. As a result, Georgian economic growth forecasts were slashed to 2.5%.
But for me, the economic fallout from the war has been too heavily factored into the share price. I see Georgia as a high-growth market in the long run. It’s one of the most democratic and forward-looking nations in the former Soviet space and has one of the best ease of business rankings in the world. In fact, for a long time, it was ranked number one.
Finances
Its performance was good in 2021, buoyed by strong economic data. In March, Georgia’s Office for National Statistics said the economy had grown 14.6% year-on-year. The Bank of Georgia in turn posted that pre-tax profit of £192m, more than any year in the last five. Despite poor performance during the pandemic, it still delivered profits and I believe it has a strong future ahead of it as Georgia’s number two bank and an international operator.
An alternative
Georgia’s largest financial organisation, TBC Bank, is also in the FTSE 250. In fact, it represents a similar opportunity to the Bank of Georgia. It has a trailing-12-month P/E ratio of 3.2 and experienced a bumper year in 2021. Pre-tax profit for the 12 months to December 31 rose to £226m, massively up from 2020.
TBC Bank has also expanded its operations outside Georgia. The company recently noted that the Georgian banking business will remain its core strategy, but highlighted the upside of its Uzbek business.
Risks
There could be some short-term pain for these two banks as we’re yet to see how the Georgian economy will fare due to the war. How it will impact trade and tourism is uncertain, although it hasn’t put off Russians. Direct flights from London to Tbilisi haven’t restarted — they haven’t operated since spring 2020. Equally, the war may deter big spending visitors from the Middle East.
Despite these risks, I’m a shareholder in both banks and looking to buy more.
