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Adventurous investors should head for the frontier in Georgia

Georgia Capital, a London-listed investment fund, is trading on a big discount and looks a good bet for the brave.

Panoramic view of Tbilisi, Georgia © iStockphotos
Tblisi, the Georgian capital, is looking like an attractive place to invest

Panoramic view of Tbilisi, Georgia © iStockphotos

Georgia Capital, aLondon-listed investment fund, is trading on a big discount and looks a good bet for the brave.

One of the great virtues of the London stockmarket is that there's a healthy number of funds to appeal to investors looking for the next frontier. One of the lower-profile examples is Georgia, a destination that probably isn't on the radar for many people, but represents an interesting prospect for the brave investor.

Solid fundamentals

National markets are steadily opening up to international competition (Turkey is one key trading partner) and Georgia is keen to position itself as a transit point in trade between Central Asia and Europe. Its lack of commodity wealth is also probably something of a positive, making local businesses work harder for their profits.

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The economy has been growing at a fairly steady 4% to 6% clip since 2017 with inflation on target to stay below 3%, and a rapidly improving trade deficit. National finances look stable with interest rates at 6.5% and central-bank foreign-exchange reserves steadily growing.

A promising fund

Bank of Georgia (LSE: BGEO)

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Georgia Capital (LSE: CGEO)

At the time I thought that this investment arm was interesting, but timing wasn't ideal and the demerger took place at net asset value (NAV), which I thought might be a bit rich. Rows then developed with Russia, which helped knock sentiment and since the demerger the shares have drifted ever lower. At the current share price of around £10 a share, the discount to NAV looks to be about 30%, which strikes me as better.

In simple terms, Georgia Capital is a hybrid fund, containing of two main components. The biggest chunk (60%) consists of substantial holdings in Bank of Georgia (19.9% stake) as well as a 57% stake in Georgia Healthcare (LSE: GHG). These are both performing well. Georgia Healthcare has recently announced a dividend policy, and plans to pay out 20%-30% of annual profit. Bank of Georgia's shares are still lowly priced, trading at 1.4 times book value, on a price-to-earnings ratio of around five and a dividend yield of over 10%.

Fast-growing private equity

This frenetic pace of activity shows up in the latest reported quarterly numbers which showed a 7.2% return in local currency terms for the first quarter of this year (3.5% in sterling terms) comprised of a 12.1% total return in local currency from the listed portfolio companies and a 2.1% total return from the private portfolio companies. Overall, I think Georgia Capital now looks like a good bet as long as Georgia can keep on good terms with Russia.

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