Georgia Capital Plc., Aug. 2022

Sector:  Holding companies/private equity

Price (Aug 6^th, 2022): GBP 6.72

Target price (12m): GBP 10.4

Expected Share Price Return: +55%

Investment Risk: Medium

Rationale for investment

• Exposure to resilient businesses in Georgia, currently benefitting from new business and people inflows due to the Russia-Ukraine conflict
• High discount to NAV of 59%
• Ability to exit investment at attractive valuations
• Regular dividends from portfolio companies

Profile

Georgia Capital PLC (GC) is a platform for buying, building and developing businesses in Georgia and monetizing investments, as they mature. The company is a UK premium listed company (LSE: CGEO LN).

Georgia Capital focuses on capital-light, larger scale investment opportunities in Georgia, which have the potential to reach at least USD100m equity value over the next 3-5 years and to monetize investments through exits, as investments mature.

Investment Case

The Georgian economy recovered quickly from the COVID-induced downturn, with real GDP up 10.4% in FY21.  The country has strong growth prospects for 2023–27 of 5%+ pa, according to the IMF.

GC provides exposure to the Georgian economy at a wide 60% discount to NAV, mostly through resilient, market-leading businesses in sectors like healthcare, pharmacy, financials, renewable energy and education.

Georgia is an open emerging market and its ambition to transform itself into a Regional Hub Economy has already produced tangible results via strengthened trade integration and diversification. It is also a business-friendly environment supporting foreign investments.

Georgia is currently benefitting of business and professional people inflows due to the Russia-Ukraine conflict, which should reflect positively on the economy.

We have some concerns about a potential Russian intervention in Georgia. However, we consider this scenario unlikely in the foreseeable future. Russia invaded Georgia in 2008 and, while it was unable to introduce a pro-Russian government in Tbilisi, but it achieved the seizure of two breakaway republics (South Ossetia and Abkhazia)  and prevented Georgia from joining NATO.

Valuation

GC’s shares trade at a relatively wide discount of c. 59% to end-March NAV per share. This compares with the current average discount of peers of c. 30%. Company exibited strong NAV per share growth of+13% p.a. over the last 3 years, but was down 16.5% in Q1 2022 reflecting the adverse market movements on portfolio companies valuation.

I set up a target price based on a 40% discount to current NAV of GBP16.5. I expect the NAV to increase by min. 5% yoy in line with Georgian economy. Hence my 12m target price is GBP10.4.

Investment Risks

• Concentrated portfolio in an emerging market economy
• Potential Russian intervention in Georgia
• Low liquidity

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