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The FTSE 250 index contains numerous mid-cap stocks that are heavily linked to the overall health of the UK economy. Unfortunately, that hasn’t been particularly healthy lately. However, there are FTSE 250 companies that are exposed to some very attractive growth opportunities overseas.
One example is Bank of Georgia Group (LSE: BGEO), a fast-growing lender whose share price has more than doubled in five years. Yet the stock remains dirt cheap with a high dividend yield, which I think makes it a strong candidate for passive income.
Why this stock?
This company is the leading bank in Georgia, with over 1.6m monthly active retail customers. It’s also involved in corporate and investment banking, and has been in asset management for nearly two decades.
On 17 August, the Tbilisi-based lender reported a 33.5% surge in half-year profits, driven by a sharp rise in net interest income. This figure soared 39% year on year to GEL767.8mn (£230m), resulting in group profit of GEL688.8m (£207m). GEL, by the way, is the currency symbol for the Georgian lari.
Net interest margin, which is the difference between the rates on savings and loans, rose to 6.5% from 5.3% in H1 last year.
It seems the bank is firing on all cylinders.
Why Georgia?
In recent years, Georgia (the nation, not the US state) has signed free trade agreements with multiple countries and is geographically positioned as a trade hub between Europe and Asia. As a result, it has one of the world’s fastest growing economies, with real GDP increasing by 10.1% in 2022.
Encouragingly, annual inflation was just 0.6% in June and 0.3% in July. What the UK would give for those inflation figures!
Also noteworthy is that the Georgian government has fostered an environment conducive to technology start-ups. It has created specialist digital nomad visas designed to attract tech-savvy online workers and entrepreneurs.
This is bearing fruit, with Tbilisi now one of the world’s most popular destinations for remote workers. Almost anyone can open a bank account on arrival, which differs from most countries where residency is required. This is benefiting Bank of Georgia, as is the low tax regime designed to encourage foreign investment.
That said, I should highlight some ongoing issues relating to Georgia’s application to join the EU. Polls show around 83% of the population favour joining. However, recent government legislation has placed this in jeopardy, resulting in widespread civil unrest.
The bank’s shares declined around 18% following this instability, though they’ve since rebounded 45%. Further unrest and subsequent volatility in the share price can’t be ruled out.
A grand a year in passive income
Having said that, I think some of this political risk may be priced into the valuation of the stock. It has a low forward price-to-earnings (P/E) ratio of 4.4, which is cheaper than most UK-based banks.
Meanwhile, the forward dividend yield is a meaty 8%. At todays share price of £35, that means I could expect £1k a year in passive income from approximately 368 shares. Those would cost me around £12,900.
Of course, dividends aren’t guaranteed, but I’m encouraged that the payout is covered 2.7 times by anticipated earnings. If I had spare cash today, I’d buy this FTSE 250 bank stock and hold it long term.
