LONDON (ShareCast) - (ShareCast News) - BGEO Group, the Georgian banking and healthcare group, revealed 2016 profits and earnings rose strongly even though they were held back by a decline in the fourth-quarter.
Results were affected by a 10.5% devaluation of the Georgian Lari compared to the US dollar over the year, particularly in the fourth quarter of the year when it devalued by over 13%.

But the Georgian parliament has approved a change in the corporate taxation model, with changes applicable from 1 January 2017, apart from certain financial institutions, which Bgeo has recognised as a GEL 63.8m income tax benefit for the group.

Profit for the final three months of the year, the group generated revenue of 305.5m Georgian lari (£93m), up 13.3% on the third quarter, but that post-tax profit of GEL88.7m fell 7.2% year-on-year and 37.3% quarter-on-quarter.

The FTSE 250-listed group said this decline reflected the absence of some net positive one-off benefits in the
third quarter and a higher cost of credit risk as a result of additional impairment provisioning following the Lari
devaluation.

Despite this, for the full year group revenue increased 17.8% to GEL 1.01bn, profits were up 37.8% to GEL 428.6m, and earnings per share increased by 31.3% to GEL 10.41.

A number of other one-off items affected the annual numbers, including gains from sale of shares, negative goodwill and accounting charges, which together with the tax changes, resulted in a net benefit of GEL 60.5mln in 2016.

On the banking side, the loan book increased 25%, driven by very strong growth from retail banking, and the profit from the bank was GEL309m.

The investment business generated a stronger than expected profit of GEL88m.

House broker Numis said Georgia continues to offer the strongest GDP growth prospects in Europe and analysts see the BGEO group return profile being a multiple of that growth.

"We believe that the more Georgia evidences growth and democracy the higher the multiple the market will pay for its growth. BGEO is a high margin, high return, high growth business that is valued at a single figure multiple of earnings."

Numis highlighted sustainably high risk-adjusted margins with low leverage, as it meant BGEO was better able to absorb external shocks and consequently should be able to also offer lower risk as well as higher returns.

"High sustainable margins without a duration imbalance indicate pricing power, low negative earnings volatility, and a lack of excessive competition - all of which we like."

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