Bank of Georgia Holdings reports strong 3Q12 results

Bank of Georgia Holdings (BGEO LN) posted a 16% yoy increase in 9M12 revenue (and +25% yoy in 3Q alone) driven by 16% growth in net interest income, a 23% advance in net fees and commissions and 1.5x growth in insurance revenue. Net of a one-off gain a year ago, the bank raised its 9M12 top line 24% yoy. Net loans advanced 20% yoy and 5% qoq as of end-September 2012, while deposits showed a slight 2% decline over the quarter (but +24% yoy). With costs advancing just 7% in 9M12, the bank’s Cost/Income improved almost 4 pp yoy to 45%, and to a record low 44.4% for 3Q12 alone. Cost of risk increased to 1.2% (+0.3 pp yoy) in 9M12 and to 1.6% in 3Q alone (+0.5 pp qoq), which the bank attributed to a pre-election economic slowdown and job cuts by the bank’s payroll clients – a process which is likely to end after election-related uncertainty fades in Georgia. Profit advanced 17% yoy in 9M12 to GEL 133 mln (USD 80 mln or USD 2.37/share), which allowed it to report 19.4% annualized ROE (+0.5pp yoy) for the period. In 3Q alone, the bank generated USD 28 mln in net profit.

Alexander Paraschiy: The 3Q results strengthen our view that the bank will outperform our USD 101 mln bottom line forecast for 2012. While 4Q12 might not be as good as usual for the bank (on a possible temporary decline in demand for new funds in Georgia related to political uncertainties), we believe it will be able to reach its targeted 20% ROE this year. We remain bullish on Bank of Georgia stock and believe its 45% discount on 2012 P/E to its FSTE-350 banking peers is not justified.