LION FINANCE GROUP PLC (BGEO) — Investment Research Note

Executive summary

Lion Finance Group is the LSE-listed holding company for Bank of Georgia (Georgia's leading universal bank, 99% of GFS profit) and Ameriabank (acquired March 2024, now the #1 bank in Armenia by loan share). The 5-year operating trajectory shows compounding excellence: ROAE consistently above 25%, loan book growth of 17-22% in constant currency, cost-income ratio falling from 39.7% (2020) to 35.8% (1H25), and a transformative cross-border acquisition that is already EPS- and ROE-accretive. The single most important valuation issue today is that the share price has rerated 74% in the past year — the bull case (sustained 25%+ ROE, double-digit loan growth across two markets) is now substantially in the price.

Fair value estimate

Range: 9,500p – 12,000p per share | Implied market cap: £4,094m – £5,171m

Methodology: Multiples of trailing book value and forward earnings, anchored to sustainable ROE.

Key inputs:

• Book value per share at 30 June 2025: GEL 176.81 (≈4,727p at GEL/GBP 3.74) 2025-08 half-year
• 1H25 EPS GEL 23.70 basic, implying ~GEL 47 annualised ≈ 1,260p
• Group ROAE 27.9% in 1H25 (GFS 31.6%, AFS 20.6%) 2025-08 half-year
• Medium-term targets: 20%+ ROAE, ~15% loan growth, 30-50% payout 2025-08 half-year

Anchor scenarios:

• Conservative (9,500p, ~2.0x BV): assumes ROE normalises to 22% as the cycle matures and as competitive pressure on net fees compresses margins (already flagged for 2H25 by management)
• Central (10,900p, ~2.3x BV / ~8.6x earnings): sustainable through-cycle ROE ~24%
• Bull (12,000p, ~2.5x BV): ROE holds at 27%+ and Ameriabank retail franchise scales as planned

Vs. current market cap of £4,767.8m: midpoint implies -2.9% downside; the bull case is ~5% above current. The stock is fair-to-slightly-rich.

Sector context

Banks (ICB Super-Sector). The Group's quality and profitability are well above typical EM-bank peers — 28% ROAE compares with ~10-15% for most listed EM banks; cost-income at 36% is best-in-class; NPL ratio of 1.9% with 119% collateralised coverage is excellent. Closest LSE-listed comparators are TBC Bank (TBCG.L, the other Georgia-Armenia bank), Bank of Cyprus, and at a stretch the CEE banks (OTP, PKO). BGEO and TBC are the only liquid pure-plays on Caucasus banking and trade at similar P/B multiples around 2.0-2.5x.

Investment thesis (3 bullets)

1. Twin-market structural growth engine. Georgian GDP grew 7.6% and Armenian 8.1% y-o-y in 1H25; loan book grew 22.5% y-o-y in constant currency with GFS up 17% and AFS up 37.6%, indicating both economies are in a structural credit deepening phase and BGEO has leadership share in both. 2025-08 half-year
2. Ameriabank integration is working and accretive. Standalone Ameriabank delivered GEL 230.7m profit in 1H25 (up 23.6% y-o-y) on 33.8% loan growth, with a 21.1% loan market share and 19.1% deposit share in Armenia. Acquired at 0.65x NAV and 2.6x 2023 P/E — an outstanding entry valuation. 2024-02 acquisition announcement
3. Disciplined capital return. Quarterly dividends totalling GEL 11.4/share annualised plus active buybacks (GEL 55m programme extended at May 2026 AGM), supported by Bank of Georgia CET1 of 17.3% (220bps above min) and 30-50% payout target. 2026-05 AGM result

Key risks (3 bullets)

1. Geopolitical exposure. Both Georgia and Armenia border Russia/Iran/Turkey; the half-year reports explicitly flag sanctions-evasion compliance risk, capital flight risk, and political turbulence (Georgia post-Oct 2024 elections; Armenia-Azerbaijan peace deal could go either way). A regional shock would hit GEL/AMD, NIMs, and ECL provisions simultaneously. 2025-08 half-year
2. Currency translation risk to UK investors. Books reported in GEL; ~22% of dividends are paid in GBP at spot conversion. A 10% GEL devaluation would knock 80-90bps off capital ratios and cut sterling EPS by ~10%. 2025-08 half-year
3. Cycle maturation. Management is already guiding fee income deceleration in 2H25 ("high single digits in 3Q25, low double digits in 4Q25") and elevated cost growth (CEO contract reset, resolution fund); the very high reported ROAE is partly a function of an extended credit upcycle that will not last indefinitely. 2025-08 half-year

Operating leverage

Banks are moderate, not high, operating-leverage businesses. The Group's cost-income ratio of 35.8% in 1H25 (vs. 39.7% in 2020) and positive jaws of ~6 ppts y-o-y demonstrate genuine operating leverage as the franchise scales — net interest income grew 32.5% y-o-y while operating expenses grew 37% (skewed by Ameriabank consolidation; ex-AFS, GFS operating expense growth was 16.9% against operating income growth of 11.1%, i.e. negative jaws in GFS in 1H25). A 10-20% revenue surprise would likely lift operating profit by ~15-25%, not multiples. This is not a "long-tail upside" name; it is a steady compounder. The Armenian retail franchise (only 408k active customers vs. 2.1m at Bank of Georgia) is the real embedded option — there is genuine scope for AFS to lift Group ROE meaningfully over 3-5 years. 2025-08 half-year

Value-trap signals

None identified. NPLs improving (1.9% vs. 2.0% y-o-y), strong capital generation, no dividend cuts, no related-party concerns disclosed, Georgia Capital holds 19.1% as a "follower" voter (above 9.9% it votes with the float), no regulatory threats beyond ordinary banking supervision.

Earnings vs. expectations

The filings disclose actual results against management's medium-term targets (15% loan growth, 20%+ ROAE, 30-50% payout) rather than against analyst consensus quarter-by-quarter. Against management targets, the Group has consistently beat on all three: loan growth 22.5% vs. 15% target; ROAE 27.9% vs. 20% target; payout in upper half of range. Profit before one-offs grew 19.4% y-o-y in 2Q25 and 28.4% in 1H25; the only "miss" was the optical -30% in headline 1H25 profit driven by the GEL 669m one-off bargain-purchase gain in 1H24. Pattern: persistent beats vs. internal targets, in-line vs. analyst consensus (not explicitly disclosed).

Conviction: 4 (high)

Supporting: clean disclosure with consistent quarterly cadence; reviewed by EY; ROAE has been above 25% for five consecutive years; multiple valuation approaches (P/B, P/E, DDM) all converge on fair-to-slightly-rich. Limiting: the bull case requires sustained 25%+ ROE in two emerging markets simultaneously — historically unusual, and the recent 74% one-year rerating means much of that bull case is in the price.