Looking at valuation metrics alone, the Bank of Georgia (LSE:BGEO) is among the top value stocks on the FTSE 350. The Tbilisi-based bank currently trades at 3.6 times earnings and offers investors a 6.9% dividend yield.
So, surely, I can’t ignore this stock? Isn’t it a slam-dunk buy?
Hunting value
The Bank of Georgia is among the cheapest banks I’ve come across. It’s far cheaper than the likes of Barclays and Lloyds, which are widely considered cheap by most analysts.
While this 3.6 times earnings valuation is very attractive, there are two obvious reasons that it’s cheaper than its peers.
First of these is growth. As we can see from the below table, the Bank of Georgia isn’t expected to deliver particularly energetic growth in the coming years.
In fact, earnings per share won’t exceed 2022 levels again until 2025.
| 2022 | 2023 | 2024 | 2025 | |
| EPS (p) | 952 | 906 | 902 | 988 |
| Price-to-earnings | 3.6 | 3.8 | 3.8 | 3.5 |
The second reason is that people like to invest in what they know. And let’s face it, most people haven’t heard of this Georgian bank. In fact, I’d suggest most people are more familiar with the iconic building in which it is headquartered.
Political concerns
Another cause for concern is politics. Georgia is a fabulous country, well worth visiting, with amazing food, culture, and wine. However, it’s increasingly divided along political lines.
Mikheil Saakashvili, the former president of Georgia, is expected to play a role in the 2024 elections, potentially leading the opposition against the ruling Georgian Dream party.
Saakashvili is a popular figure among some, but was also partly responsible for the outbreak of the devastating war with Russia in 2008 as well as forced nationalisation.
Bidzina Ivanishvili, the billionaire founder of Georgian Dream, remains the most powerful figure in Georgian politics. Ivanishvili is deeply unpopular among some Georgians, and his continued involvement in politics could energise the opposition.
In recent years, there have been several demonstrations against the government. Nationalist factions have become increasingly concerned by Georgian Dream’s passive position on Russia, and its acceptance of thousands of Russian migrants.
Economics
Banks are cyclical stocks, and that’s why bank stocks in slow growing economies like the UK, tend to trade with lower multiples than more exciting peers.
For example, Standard Chartered, which focuses on operations in fast-growing Asian economies, trades with a price-to-earnings almost double Lloyds.
However, the Bank of Georgia is an exception to this rule, primarily due to the factors mentioned above.
Nonetheless, it’s worthwhile noting that Georgia is among the fastest growing economies in Europe.
Growth is expected to slow from double digits in 2021 and 2022, to 5.2% in the years from 2025-2028.
Personally, I’m keeping my powder dry until the election, despite the attractive valuation.
