Bank of Georgia(LSE: BGEO) is one of the markets most exciting companies.
You see, Bank of Georgia is no ordinary bank. In fact, the entity is a holding company forJSC Bank of Georgia, a healthcarebusiness, and several private equity style investments.
Whats more, the company operates within one of Europes most free-market economies(Georgia) where theres plenty of room for growth.
Georgias banking sector is relatively underdeveloped and highly fragmented. So, there are plenty of opportunities for Bank of Georgia to take advantage of. The group alreadyhas more than a third of Georgian banks market share.
Bank of Georgias first-quarter results showcased the banks strengths. Group revenue jumped by 39% year on year and banking net interest income rose by 50% thanks to the banks acquisition of Georgias 9th largest bank, Privatbank during the fourth quarter of last year.
Moreover, during the first quarter Bank of Georgias healthcare gross income increased by 81% year on year.
As two emerging market banks, Bank of Georgia andStandard Chartered(LSE: STAN)have many similarqualities. Bank of Georgia is profiting from the rapid growth of Georgias economy, which grew 5% during 2014. While Standard continues to benefit from Asia economic development and the regions expanding wealth.
However, unlike Bank of Georgia, Standards growth has hit a wall, loan impairments are rising and the bank has come under fire from regulators for lax money laundering controls.
Standard could be accused of sacrificing quality for quantity in itsquestfor growth and now, this is coming back to haunt the bank.
Standards return on equity a key measure of bank profitability has slumped over the past decade. From a high of 18%, as reported at the end of 2005, ROE fell to around 13% during 2010 and 2011 and then slumped to a dismal 5.4% for full-year 2014.
Standards management is now working flat out to try and boost ROE to over 10% in the medium term but this is a far cry from the banks historic average.
On the other hand, Bank of Georgia is targeting a much higher return.
Bank of Georgias management has put in place a plan for growth that it has named the 420% plan for obvious reasons.
Under the plan, the bank is targeting aconsistent return on equity of 20% per annum, a tier one capital ratio of at least 20%, 20% per annum growth in customer lending and an internal rate of return of 20% on any investments made.
The group is close to hitting these key targets. During the first quarter, return on averageequity came in at 19.8%, the banks tier one capital ratio stood at 20.8%. Customer lending increased by 40.3% year on year, and most of the companys investments reported an IRR of 30% to 165% during the period.
Top growth stock
Bank of Georgias earnings per share are set to fall by 9% this year, although analysts believe that they will rebound by 23% during 2016.
Based on the Citys current numbers the banks shares are trading at a forward P/E of 8.6 and will support a dividend yield of 4.2% this year. Based on City projections Bank of Georgia is currently trading at a 2016 P/E of 7.1.
All in all, Bank of Georgia could be one of the market’s hidden gems; something we’re always on the lookout for here at The Motley Fool.
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