Georgia Capital (LSE: CGEO)

Last close As at 21/06/2024

GBP9.09

31.00 (3.53%)

Market capitalisation

GBP383m

Georgia Capital focuses on scalable private equity opportunities in Georgia. These opportunities have the potential to reach an equity value of at least GEL300m over the next three to five years and the company can monetise investments through exits as investments mature.

Equity Proposition

Georgia Capital (GCAP) has a unique position as an experienced institutional financial investor in Georgia. GCAP was created in 2018 when BGEO group de-merged into Bank of Georgia (BoG) and GCAP. It is a private equity investor managing a portfolio of over £1bn with a focus on scalable businesses.

Below we discuss the key points of its investment story.

#1 Georgia Capital is a quality play on a fast-growing frontier economy

Georgia is an attractive economy at the junction of Europe and Asia, capitalising on trade flows in both directions. It has been in a secular growth trend for over 20 years, with a 5.5% average real GDP growth rate in 2003–23, assisted by structural reforms that made the country an attractive place for doing business with stable governance compared to other countries in the region. The International Monetary Fund expects this growth to be sustained in the coming years at above 5% annually. Currently, Georgia enjoys a boost to its GDP and foreign currency flows from the information and communication services sector, driven by the influx of highly skilled immigrants, mostly from Russia.

#2 GCAP holds an equity portfolio of local market leaders, including one of Georgia’s top banks

GCAP’s portfolio consists of resilient and well-established businesses in Georgia. Around 90% of this portfolio is valued externally, either by public markets (the listed BoG) or the independent valuer Kroll. It has exposure to the country’s growth story through several core sectors of the economy, including mature businesses of retail pharmacy, hospitals, insurance and its minority stake in BoG, as well as investment stage companies in renewable energy, education, and clinics and diagnostics, among others.

#3 GCAP has an active approach to value creation

GCAP is an active private equity investor that supports growth of its portfolio companies both organically and through a ‘buy and build’ strategy. It also encourages companies to incorporate best business practices, including ESG. The investment team has around 20 years’ experience in building local leaders, as the members of GCAP’s investment team were previously responsible for BoG’s investment division. For instance, in December 2021, GCAP sold its water utility business to one of the top water companies globally realising a 2.7x multiple of invested capital and a 20% internal rate of return (see our January 2022 note for details).

#4 GCAP maintains a strategic focus on deleveraging

GCAP continues to decrease its leverage at holding level, supported by stable and recurring income generated by its relatively mature portfolio and distributed to GCAP through dividends. In August 2023, GCAP refinanced its debt by issuing a US$150m sustainability-linked bond (maturing in 2028), rated ‘BB-’ by S&P, which attracted high-profile international financial institutions. GCAP pays an 8.5% fixed coupon, which was broadly in line with US corporate high yield bonds at the time of issuance.

#5 GCAP regularly performs NAV-accretive share buybacks

GCAP invests in companies that have potential to reach sufficient size to attract international investors, thus expanding its exit opportunities pool. When making capital allocations, GCAP intends to buy assets at a higher discount to their listed peers than GCAP’s discount to net asset value to generate a higher expected return than buying back its own shares. However, given GCAP’s high discount to NAV in recent years and good progress on its deleveraging agenda, GCAP spent US$86m on NAV-accretive share repurchases since its inception in 2018 to end-2023 (c 17% of its issued capital).

Latest Insights

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Investment Companies | Update

Georgia Capital — FY23 NAV TR of 20% in sterling terms

Investment Companies | Update

Georgia Capital — Successful bond refinancing improves risk profile

Investment Companies | Update

Georgia Capital — Staying on course

Investment Companies | Review

Georgia Capital — Nearing deleveraging target

Equity Analyst

Milosz Papst

Milosz Papst

Director, Financials

Michal Mordel

Analyst, Investment trusts

Key Management

  • Giorgi Alpaidze

    CFO

  • Irakli Gilauri

    Chairman & CEO

Share Price Performance

Price Performance
% 1M 3M 12M
Actual (10.5) (30.1) 9.1
Relative (8.9) (34.5) (0.2)
52 week high/low 1374.0p/825.0p

Overview

Georgia Capital (GCAP) reported a Q423 NAV total return (TR) of 7.7% in Georgian lari (GEL) terms (3.4% in sterling terms), bringing the FY23 NAV TR to a strong 26.5% (20.4% in sterling terms). The considerable increase in the sterling share price of Bank of Georgia (BoG) was the main contributor, adding c 5.1% and 19.5% to GCAP’s opening NAV in Q423 and FY23, respectively. This was further assisted by positive revaluation of all large and investment-stage private holdings, except for the hospital business. In aggregate, GCAP’s private holdings added 1.9pp to its Q423 NAV TR. NAV-accretive buybacks of US$8.3m added a further 0.9pp.

Research

Review

Investment Companies

Georgia Capital — Nearing deleveraging target

Update

Investment Companies

Georgia Capital — Benefiting from strong macro tailwinds in Georgia

Update

Investment Companies

Georgia Capital — NAV per share stable in local currency in Q222

Review

Investment Companies

Georgia Capital — A portfolio of market leaders in Georgia

Review

Investment Companies

Georgia Capital — Value creation on the back of macro recovery

Review

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Georgia Capital — Solid positive revaluations in Q420

Initiation

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Georgia Capital — A private equity play on Georgia

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