The FTSE can be a great place to look for bargain stocks. Earlier this year, when Russia invaded Ukraine, I started looking closely at distressed stocks.
One area of the market that struct me as being meaningfully undervalued was Georgian banks. In fact, these fell almost as hard as Ukraine-focused mining company Ferrexpo.
Georgia borders Russia, and during the presidency of nationalist leader Mikheil Saakashvili, the two countries went at war over the territories of Abkhazia and South Ossetia. But, to me at least, it didn’t seem likely that Georgia would be drawn into war with Russia.
And while Russia and Ukraine were Georgia’s biggest trading partners before the war, the conflict seemed unlikely to derail the surging Georgian economy.
So I bought shares in the Bank of Georgia (LSE:BGEO) and its peer TBC Bank. The latter has been good to me too — up 75%. But today, I’m focusing on the former.
Huge returns
The two Georgian banks were trading like distressed stocks in March and April. So, for many investors, these firms could have appeared risky investments. However, thanks partially to my personal exposure to the country, I didn’t see it that way.
So, in early April, I bought Bank of Georgia for a little over £12 a share. The stock had plummeted around 50% in the preceding months.
Banks, like many other stocks, often reflect the health of the indigenous economy. And instead of economic decline, the Georgian economy has continued to soar. Ironically, and much to the dismay of many its local population, Tbilisi is now filled with Russians escaping sanctions and Putin’s draft. But they are contributing economically.
Last week, Bank of Georgia reported a rise in third-quarter pre-tax profit to £103.26m, with its performance underpinned by wider growth in the Georgian economy. The Q3 figure represented growth of more than 33% year-on-year.
Georgia’s second-largest bank also benefits from higher interest rates. Net interest margins rose 30 basis points year-on-year to 5.3% in the quarter, although it was flat on the quarter.
So now, seven months after I bought into Bank of Georgia, the share price is currently £24. So I’m up 100%, including fees.
Why I’m holding
My investment in the Bank of Georgia gives me greater exposure to a fast-growing economy. I appreciate it’s not without its challenges and investing in Georgia is certainly seen as riskier than investing in banks in the UK. For one, major political parties represent very different views and a change of government could seriously impact my investment.
The Tbilisi-headquartered firm currently trades with a price-to-earnings ratio for the last four quarters of just 4.18. That’s very low. In fact, that’s even lower than UK banks that are operating amid recession forecasts. The Bank of Georgia also offers an attractive 4.5% dividend yield.
Because of these factors, I’m holding my shares, despite being 100% up. I might even buy more for the long run.
