Although I think that the IPO of Georgia Capital was arguably one of the worst timed recent issues in living memory (and overpriced at launch to boot), I nevertheless have this frontier market play ( a listed fund on the LSE) on my watchlist.

For two reasons.

The first is that the fund has now derated and is looking much more interesting i.e decent value. The second is that any shortlist of countries to watch should probably include the former Soviet state Georgia, which seems to be doing very well despite the best intentions of its hostile northern neighbor and troubles next door in Turkey.

We’ve just had the final results for the year through to 31st December and the good news is that there’s no obvious bad news. According to Numis, in general, the Georgia Capital portfolio businesses are “performing well, with double-digit revenue growth and increased earnings supporting strong operating cash flow generation. However, valuations of both the quoted and unquoted holdings have suffered from a difficult backdrop for Frontier and Emerging markets, particularly in Q4 2018”. Numis reckons that the current NAV has risen to 1,497p allowing for currency movements and changes in the prices of quoted holdings – the current share price is 1,148p (£438m market cap) which is equivalent to a 23% discount to our estimated NAV.

Looking through to the portfolio businesses, they all seem to be doing well:

  • Georgia Healthcare Group (28% of portfolio): Numbers out last week, revenues up 14% and EBITDA 22%.
  • Bank of Georgia (24%): earnings per share 4% ahead of Numis’ Financials Analyst’s forecasts. “The yield on assets was lower as the mix shifted towards lower risk mortgages, but the risk adjusted margin remained broadly stable at 5.9%, against the 5.8% reported last year. Overall the group ROE remains very strong at 26.1%. “
  • The private water business representing 23% of the portfolio. EBITDA up just under 15%, off the back of “higher revenues from water sales and continued efficiency improvements, which were offset by lower than expected revenues from electricity sales.
  • Private housing development, with profit up 79% with new projects ready to go

Crucially the Georgian economy continues to perform strongly.  Here’s the excellent Numis summary (if only the UK was so positive):

“Real GDP growth was c.4.8% in 2018 on the back of strong external demand, driven by double-digit growth in exports, and tourism revenues. Inflation was  2.6% in 2018, close to the targeted 3% level, while the Georgian Lari remained resilient to regional turbulence in Turkey and Russia, and only depreciated by 3.3% against the US Dollar. The current account deficit continued to shrink in 2018 and for the first time in Georgia’s history, there was a current account surplus in 3Q18. The fiscal deficit is also expected to decrease to 2.3% of GDP in 2018 from 2.9% in 2017. Interest rates currently stand at 6.75%.”

Mind those pedestrians

One final, completely unrelated information titbit, gleaned today from SocGen’s Albert Edwards.

Apparently, there has been an upsurge in pedestrian traffic fatalities in the US probably resulting from the “dramatic growth in smartphone use and state legalization of recreational marijuana. The report notes, “The seven states (Alaska, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington) and DC that legalized recreational use of marijuana between since 2012 reported a collective 16.4% yoy rise in pedestrian fatalities, whereas all other states reported a collective 5.8% yoy decrease in pedestrian fatalities.” It appears the US is gripped by an epidemic of stoned pedestrians stepping into traffic.”

The decades’ long story of demographic change has been one of longer life spans, declining fatalities from accidents and a general improvement in health in the developed world. But in recent years we’ve seen these trends either slow down or even reverse for many subgroups within the wider population. Working class men, in particular, have seen a sharp increase in suicides and other deaths from despair in the US.

Maybe now we’re seeing a new trend amongst younger folk – death by RTA as a result of excessive iPhone usage and getting stoned.

Something else to nag your children about.