Against the challenging economic backdrop created by COVID-19, Georgia Capital’s performance during the third quarter of 2020 has been robust – Irakli Gilauri, Chairman and CEO of GCAP stated in a report released by Georgia Capital PLC highlighting 3Q20 and 9M20 results.
According to Gilauri, this performance reflects the high level of resilience of the private portfolio companies and continued delivery on Group’s strategic priorities.
“NAV per share (GEL) was up 19.5% in 3Q20 to GEL 37.84. The first time valuation of GHG as a wholly owned private company, performed by an independent valuation company, contributed 36% of growth to NAV per share. This was partially offset by decreased valuation of a listed asset and an FX loss on GCAP net debt. Overall, NAV per share (GEL) was down 19.2% in 9M20, primarily reflecting decreased valuations of our portfolio businesses” – Gilarui explains, adding that expectations of the Group is that the GHG valuation reflected in the 3Q20 NAV Statement reflects that the public markets, most likely due to the relatively small size of GHG and lack of liquidity in the trading market for its shares, were significantly undervaluing GHG.
According to Gilauri, GCAP’s portfolio has been further strengthened. “At 30-Sep-20, following the buy-out of minority shareholders in GHG5 , 79% of our portfolio – with a GEL 2.4 billion valuation -- is concentrated across Bank of Georgia (“listed portfolio companies”) and our portfolio of growing, market leading, cyclically resistant private businesses. These are Healthcare Services, Retail (pharmacy), Insurance (P&C and Medical) and the Water Utility (“large portfolio companies”). Renewable Energy and Education (“investment stage portfolio companies”) form a further 12% of our portfolio and are businesses which we plan to scale up and expect will drive value creation going forward. The remaining 9% is spread across the five other companies in our private portfolio, which we currently believe offer less scalable growth potential (“other portfolio companies”) as more fully described below” – Gilauri added.
GCAP CEO said underlying operating performances across GCAP’s private portfolio remained solid. “Despite COVID-19, the aggregated revenue across our large portfolio companies increased 1.3% y-o-y in 3Q20 to GEL 303.7 million and was down by only 1% y-o-y in 9M20 to GEL 880.6 million. Acquisitions in the investment stage portfolio companies led to 52.6% y-o-y growth in 3Q20 revenues of GEL 19.2 million (up 3.5 times y-o-y in 9M20 to GEL 52.0 million). On likefor-like basis6 , the aggregated revenues of all businesses grew by 3% in 3Q20 and 4% in 9M20, y-o-y. The aggregated EBITDA also increased 4.5% y-o-y in 3Q20 to GEL 87.1 million (up 5.3% y-o-y to GEL 209.4 million in 9M20)” – Gilauri stated.
The report which was released last week highlights that 125% y-o-y growth in total net operating cash flow generation of the Group’s portfolio in 3Q20 to GEL 113 million, reflects strong business growth as well as GCAP’s cash preservation and accumulation strategy (up 106% y-o-y in 9M20 to GEL 291 million). “As a result, the aggregated cash balances of our portfolio companies almost doubled in 9M20 to GEL 361 million at 30-Sep-20 (GEL 282 million at 30-Jun-20 and GEL 183 million at 31-Dec-19)” – reads the statement.
Figures also show that GCAP’s liquidity remained high. “During 3Q20 we collected GEL 10 million dividends from our private portfolio companies and our liquidity reduced only 4.6%, to GEL 267 million, notwithstanding US$ 9 million coupon payment. During 3Q20, our only material investment was the buy-out of minority shareholders in GHG, in exchange for newly issued CGEO shares valued at GEL 138 million“ – Gilauri elaborated.
In his statement GCAP’s CEO touched upon the macro-economic perspective as well, stating that Georgia’s response to the virus outbreak was rapid, with swift containment measures proving critical in ensuring that Georgia emerged as one of the least affected countries in Europe, and while COVID-19 cases have accelerated since September, Georgia maintains a relatively low number of confirmed cases and deaths per capita.
“Georgia is expected to be less significantly impacted compared to other tourism dependent countries, with 5% GDP contraction forecasted by the IMF, followed by a 5% rebound in 2021. Since the gradual lifting of a full lockdown which lasted Mar-July, the economy has demonstrated an ongoing gradual recovery, with real GDP growth improving every month since the April’s low of negative 16.6% y-o-y, to negative 0.7% in September (negative 5.0% y-o-y in 9M20)” – reads the statement.
According to Gilauri, the recovery has been aided by sound economic policies and international support, as well as by diversified foreign currency inflows with record levels of remittances (up 6.2% y-o-y in 9M20 and 23.6% y-o-y in the last four months of Jun-Sep). The recovery, to him, was also supported by an adjustment in external trade, with merchandise exports returning to positive growth of 8.6% in September, and the trade deficit reducing by $750 million, y-o-y. “The Georgian Lari performed relatively well compared to other regional currencies, aided by more than US$ 700 million FX interventions, significant trade adjustments and solid official reserve assets reaching US$ 3.8 billion in September (up by 4.5% y-o-y). Despite the recent increase in COVID-19 cases, the economy remains open and, with the exception of the hospitality and education businesses, most of our portfolio businesses remain largely unaffected” – Gilauri stated.
GCAP’s CEO is impressed by the management teams in our portfolio companies and the way in which they have handled this challenging year. “However, the recent increases in COVID-19 cases have created renewed uncertainty, which could affect the pace of the expected economic recovery – Gilauri stated - While the range of possible outcomes remains, given our strong balance sheet and, in particular, our resilient portfolio, we are well placed to deliver continued NAV per share growth in the upcoming quarters”.
