One potential value stock that caught my eye recently is Bank of Georgia Group (LSE: BGEO). Should I buy or avoid the shares? Let’s take a closer look.
Bank of Georgia shares continue to climb
The Tbilisi-based banking business offers a variety of retail banking, payment services, investment, and wealth management options.
The shares have been on a fantastic run recently. I reckon this is partly linked to the strength and positivity around the Georgian economy (more on that later).
Over a 12-month period, the shares are up a whopping 42%, from 2,720p at this time last year to current levels of 3,870p.
The bull and bear case
Starting with the pros, the Georgian economy performing well has helped the business. Naturally, it has benefited from higher interest rates in recent times too. However, as its client base in Georgia grows, and the economy is a burgeoning trade and logistics hub, the shares and business have benefitted nicely.
Despite the shares soaring, the valuation still looks dirt-cheap to me. They trade on a price-to-earnings ratio of just 3.4.
In addition to this, a dividend yield of 7.5% is very attractive. Even better, it looks very well covered by 3.1 times earnings. However, I am aware that dividends are never guaranteed.
With a decent track record of performance growth, a burgeoning economy, and interest rates helping boost the coffers, dividends and earnings per share have been boosted nicely. There’s lots to like, in my view.
But what are the possible risks and why are the shares cheap? Well, one of the reasons is the long border, and tricky political relations Georgia shares with Russia, in my opinion. In 2008, Georgia lost a brief war to the superpower, so relations aren’t exactly in the best place. Any escalation could derail the Georgian economy and future prospects for the Bank of Georgia.
Plus, Georgia was recently granted EU status. This is a move that probably won’t go down too well with Russia. In turn, there is a risk of further tensions or issues that I’ll keep a close eye on.
Another issue for me is that although performing well, Bank of Georgia is not a big player. A lack of cash and infrastructure compared to larger banking players that could look to enter the market and capitalise on the current thriving economy is a risk I’ll keep an eye on.
What I’m doing now
Despite the risk of geopolitical issues with Russia, the Georgian economy is set to continue its growth trajectory for some years yet. Bank of Georgia is primed to benefit from this.
With that in mind, a very attractive valuation and passive income opportunity make it hard for me to ignore at present. Furthermore, Bank of Georgia has a leading market share in the country, at around 35%. This should help serve it well for continued growth and returns.
I’d be willing to buy some shares for my holdings the next time I have some investable cash.
