How a Georgian Bank Became One of Europe’s Top-Performing Stocks

A few years ago, Bank of Georgia was largely flying under investors’ radar.

Now, its parent Lion Finance Group Plc sits in the FTSE 100 and commands a market value of £5.8 billion ($7.9 billion). It’s one of the top-performing European banking stocks over the past five years, and its shares have climbed 740% versus a 210% gain for the Stoxx Europe 600 Banks Index.

For the next stage of its growth, Chief Executive Officer Archil Gachechiladze says he plans to export Bank of Georgia’s digital-first strategy via acquisitions in Kazakhstan and Uzbekistan in Central Asia, as well as the Baltics and the Balkans.

“We focus on the top three to top five players,” Gachechiladze said in an interview with Bloomberg. “The key to unlocking this value is finding new markets that we can apply this to.”

Bank of Georgia has benefited from the Georgian economy’s rapid pace of growth and an aggressive push into digital banking services. In addition, the influx of Russians into Georgia and other countries in the region since Moscow’s 2022 invasion of Ukraine brought a wave of capital to the South Caucasus nation and bolstered its banks.

Lion’s 2024 acquisition of Ameriabank in neighboring Armenia serves as the playbook for the lender’s expansion, Gachechiladze says. Ameriabank now accounts for almost a third of group assets and is targeting a 30% share of Armenia’s market for loans and deposits, from 23% and 20% now, respectively.

At home, Gachechiladze says the company has taken a steady approach to building its business in a booming local market, where rival TBC Bank Group Plc has also seen strong returns.

Rather than betting on any single breakthrough, small wins across lending, deposits and credit risk have added up, Gachechiladze said.

“We did slightly better every year in everything, and that has compounded,” Gachechiladze said.

Tech-Savvy

A big part of why analysts are unanimously bullish on the stock, with seven buy-equivalent ratings in data compiled by Bloomberg, is its leading position in digital banking.

In a country of 4 million people, Bank of Georgia’s app has 1 million daily active users. Once updated only a few times a year, it now gets changes every two weeks.

JPMorgan analyst Sheel Shah, who has an overweight rating on the stock, flags its relatively modest valuation. With shares trading at about seven times estimated 2028 earnings, he sees further scope for gains as the group deploys capital to grow its own business and fund acquisitions.

A return on average equity of 27% and loan book expansion of 23% year-on-year in constant currency in the second quarter suggests Lion is still growing without sacrificing profitability.

“We see potential for the two-bank Group to become five by the end of the decade,” Shah said. “The Group’s market positioning, digital ecosystem and customer penetration creates an enviable feedback loop which we believe is undervalued by the market and can be distributed to other geographies, as demonstrated in Armenia.”

For years, Gachechiladze says his challenge was getting investors to pay attention to a bank based in Georgia.

Now he’s keen to show them how Bank of Georgia is one piece in a larger, regional opportunity — and he’s aiming big for his acquisition targets.

“Top three is preferable,” he said. “We don’t go to small banks.”