I recently attended the inaugural Weird Sh*t Investment Conference in London, organised by the legendary Swen Lorenz. I heard 25 presentations throughout the day, offering left-field investment ideas ranging from banks in Kazakhstan to Madagascan hot-dog stands. Not one but two of the presentations made the case that we should be investing in Georgia, and that is what I am going to look at today: how to play the rise of the “Switzerland of the Caucasus”.
Georgia sits in a strategically enviable spot on the Black Sea, from where it looks west to Europe (Georgia has applied to join the EU), but also east to Asia. It lies on the Silk Road, the trading route to China; there are also rumours it may join the Shanghai Cooperation Organisation (SCO). To be a member of both the EU and SCO would be quite something.
It has a small, young, proud, ambitious and well-educated population of 3.7 million, 85% of whom are Christian Orthodox and another 11% Muslim. About 35% live in the capital and largest city, Tbilisi. As in so many former Soviet nations, the people want everything we in the West have and more, and they are prepared to work hard to get it. While the older generation mostly speak Russian as a second language, the Westernised, younger folk speak English, French or German. One of the conference’s presenters described Georgia’s education as “mathematically and scientifically oriented”, a legacy of Russian occupation. It is a representative democracy.
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Georgia's growth
Georgia’s dark days of post-Soviet Union corruption are mostly behind it, and in 2008 the World Bank dubbed it “the number-one economic reformer in the world” after it went in just one year from being the 112th to the 18th-ranked nation for “ease of doing business”. It now sits sixth in those rankings, with high levels of economic freedom (in 2018 it became only the second country in the world to legalise marijuana) and is one of the fastest-growing economies in Eastern Europe. Taxes, at around 20%, are on the low side.
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One of the ways it ended corruption (as well as sacking the entire police force) was by centralising key databases, such as the land registry and passports, with digital technology. Instead of having to bribe officials, you went straight to the country’s digital headquarters, where fees are flat and transparent. It has embraced new technology and the digital revolution, both in public bodies and in the private sector.
One reason it has been able to reform and grow so quickly is because it is small. It is also short of natural resources, so the country relies on trade. It is an international transport corridor, especially for commodities. Kazakh uranium, for example, can get to market because of Georgia, which also has key oil and gas pipelines. Its ports, notably Batumi and Poti, are at 100% capacity, and the Chinese are now building a deep-sea port. Historical industries include gold mining – it was to Georgia, or Colchis as it was then known, that Jason and the Argonauts went in search of the Golden Fleece – and wine production. It is still a prolific wine producer.
Georgia stocks to buy
There are no Georgia-focused exchange-traded funds (ETFs), but fortunately, there is another, better option. That is to buy Georgia’s banks. Banks are a very attractive means to gain exposure to a rapidly expanding trading nation. Georgia has two main banks. They are both cheap. They both pay healthy dividends. They are growing. Their IT and financial technology are highly rated. The market has not realised the extent to which they are expanding. And they are both listed in London.
Tbilisi Business Centre Bank, or TBC Bank (LSE: TBCG) was only founded in 1992. The FTSE 250 member has a market value of £1.7 billion, pays a yield of 7%, is on a price/earnings (p/e) ratio of five, and is buying back its own stock.
Its headquarters are in Tbilisi and it is the largest banking group in the country, with a range of financial services that include retail, corporate, and investment banking. It has a strong digital presence and caters to 1.6 million customers. As a market leader, it captures a big share of newly registered businesses and has robust loan and deposit portfolios. It’s a well-run company poised for growth. It has recently made acquisitions in neighbouring Uzbekistan, where it is expanding, and yet continues to pay its dividend and buy back stock.
Bank of Georgia (LSE: BGEO) is a similarly priced FTSE 250 stock, with a market capitalisation of £2 billion, a 5% yield (likely to be higher this year), and a p/e of three. It is also buying back stock and expanding abroad, not into Uzbekistan, but into Armenia. Founded in 1903, it is an older operation, but equally embracing of the new world of IT and fintech. It has wealth management, insurance, retail and corporate banking services, and accounts for around 40% of the banking sector’s total assets.
Like TBC, it is strategically positioned in a rapidly growing economy, and its numbers are good. It has a solid capital base, a good yield and is consistently profitable. It has a strong market share and diversified revenue streams, including retail and corporate banking, wealth management and insurance services.
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