Bank of Georgia boosts profit 11% yoy in 1H13

Bank of Georgia Holdings (BGEO LN) reported a 9.9% yoy increase in net revenue to GEL 262.7 mln in 1H13, driven by an increase in net interest income (+9.3% yoy to GEL 150.5 mln) and net insurance revenue (+90% yoy to GEL 22.7 mln). The holding’s loan book increased 2.6% YTD to GEL 3.1 bln, driven mainly by loan growth to SMEs (+16.9% YTD). The bank’s customer accounts increased 5.8% YTD to GEL 2.85 bln, with retail accounts growing 8.6% YTD to GEL 1.34 bln.

As the bank’s operating costs remained nearly flat yoy, its Cost/Income ratio improved to 41.7% in 1H13 vs. 45.6% a year before. The bank’s profit increased 10.6% yoy to GEL 95.1 mln, while EPS increased 5.1% yoy to GEL 2.70 (GBP 1.07) in 1H13. That resulted in average ROE of 17.6% for 1H13, a 2pp decrease yoy. In 2Q13 alone, the bank improved ROE by 3.4pp yoy to 19.4%.

Alexander Paraschiy: We assess Bank of Georgia’s results as broadly neutral. At the same time, we see a risk that the bank will show some slowing in its growth in 2H13 when political instability in Georgia is set to increase. There are also signs that Georgian economic growth is cooling quickly. Still, we believe that Bank of Georgia’s leading position in its market will allow it to demonstrate above-average growth in the mid term. So we remain bullish on the bank’s stock, which undeservedly trades at a 25% discount to its FTSE-350 peers’ average P/E in 2012.