Peel Hunt upgrades Bank of Georgia to 'buy'

Shares in Bank of Georgia (BGEO) rose on Wednesday as Peel Hunt upgraded the lender to ‘buy’ from ‘add’ and issued a target price of 3,450p after being under review previously.

Peel Hunt said the Georgian bank’s decision to sell down its stake in non-core business Georgia Healthcare, which represents 28% of its market value, gives shareholders increasing visibility on future capital returns.

“We update our model to incorporate the strong growth expected in Georgia Healthcare's profitability,” the broker said.

“Given the attraction of potential gains from non-core investments and the attractive earnings multiple, we move the shares to
'buy' from 'add'."

BGEO is targeting at least three special dividend payments by 2019, driven by planned divestments. The total represents at least 50% of the 2015-2019 cumulative regular dividends. Peel Hunt expects special dividends will equate to 257p or £99m over the next three years.

“This is achievable given the capital return opportunity available following the sell-down of the stake in Georgia Healthcare and the potential gain from realising value in the emerging utilities business (Georgian Global Utilities Limited),” the broker said.

“In addition, we continue to expect BGEO to benefit from underlying Georgian economic growth, supporting the core Banking division.”

Peel Hunt raised its estimate for statutory earnings per share by 12% but lowered its guidance on underlying EPS by 7%, reflecting “exceptional gains and an increase in our expectation for cost of risk”. It also upgraded its 2017 forecasts for EPS by 13% and 2018 EPS by 24%, due to increased contributions from investments.

Shares edged up 1.11% to 2,830p at 0934 GMT.