There’s no shortage of banking stocks for UK investors to choose from today. Lloyds, Barclays and NatWest usually attract most of the attention. But I’m looking at a FTSE 250 star I think could deliver better returns.
The background
TBC Bank Group (LSE:TBCG) shares trade on London’s stock market, but the company’s based in Tbilisi, the capital city of Georgia. Here, it operates 123 branches, cementing its place as the country’s biggest banking services provider.
It has in recent years also expanded into Uzbekistan where it operates a fully digital bank under the TBC brand, along with Payme, a digital payments provider.
So what makes it so special? Unlike UK-focused Lloyds, for instance, it operates in countries where banking product penetration’s low, and where their economies are growing at breakneck pace.
It’s a recipe that’s driven TBC’s profits through the roof, pushing its share price 13% higher in the last year, and 107% in the past five.
Strong trading
Trading at the bank’s still impressive, as first quarter financials showed. Net interest income jumped 21% year on year, which propelled pre-tax profit 16% higher.
This was all the more striking given the steady fall in Georgian interest rates over the period. The bank’s gross loan book rose 21% from the same 2023 period, at constant currencies. Total deposits increased 18%.
TBC says that “we continue to feel the benefits of strong economic growth within our two major operating countries, with our outlook for Georgian economic growth this year raised to 6.4%, while we expect very solid and consistent 5.6% growth in Uzbekistan“.
Large civil unrest in Georgia poses a threat to near-term growth and, by extension, TBC’s profits. The company’s also under pressure from rising costs due to ongoing expansion. Operating expenses grew 26% in Q1.
But overall, the bank appears well-positioned to sustain robust earnings growth, which should also lead to higher dividends. City analysts think so, which means TBC shares carry an impressive 8% dividend yield.
A £4,500 monthly income
Huge share price gains and large dividends have collectively supercharged shareholder returns since 2019. Indeed, TBC shares have provided a terrific 27.7% average annual return since then.
If this continues, 200 shares purchased today for a total cost of £5,639 would be worth just over £87,200 10 years from now, with dividends reinvested. Roll on another decade and they’d be worth more than a million (£1.35m, to be exact).
If I then drew down 4% of this amount a year, I’d enjoy a tasty £4,500 monthly passive income.
Of course past performance is no guarantee of future results. Returns could slow considerably as Georgia’s banking sector matures, or if economic growth in the country cools from current levels.
Still, if I had cash to invest today, I think buying TBC shares could be a great way to target a four-figure passive income each month.
