“Fish big enough to swallow a boat are not found in ditches.”
Yang Zhu
At a time of record-high U.S. equity preference, evidence of some diversification away from the U.S., and dollar weakness, Lion Finance Group PLC (LON:BGEO, ₤73.90/share) is a very attractive investment opportunity that joins my model portfolio.
Favourable Supply Dynamics
Lion Finance’s most important business segment is Georgian Financial Services (GFS), which represents 72% of the group’s total assets, while Armenian Financial Services (AFS) accounts for 25%, with the residual encompassing JSC Belarusky Narodny Bank (BNB), serving retail and small to medium-sized enterprises (SME) clients in Belarus, and JSC Digital Area, a digital ecosystem in Georgia including e-commerce marketplace, ticketing marketplace, and inventory management Software-as-a-Service (SaaS) solution for merchants.
Georgia’s gross fixed capital formation to GDP, at 24% in 2024, is down from the last decade’s 28% average; while Armenia’s gross fixed capital formation to GDP, at 22% in 2024, is slightly up from the last decade’s 21.2% average. Both numbers are in line with Eurozone and OECD averages. Data from the World Bank shows that Georgia’s domestic bank credit to the private sector as a share of gross domestic product (GDP) is 68.9%, while Armenia’s is 64.8%, compared to around 77.8% for the Eurozone and 149.4% for the OECD. Greece’s non-performing loans (NPL) ratio is 1.47%, while that of Armenia is 1.25%, with both countries experiencing a sharp decline in the NPL ratio in recent years, with Armenia and Georgia reaching a record low in 2024. Both countries have some of the lowest NPL ratios in the world. These factors suggest ample room for profitable credit expansion before oversupply of capital becomes a concern. This is especially attractive given that Georgia is the world’s sixth fastest growing economy in terms of real GDP growth, while Armenia is the world’s 42nd, with strong growth likely to continue in 2025 going forward.
Despite this, Akaki Liqokeli, the bank’s macro economist, indicated in the Q1 2025 earnings call that,
Downside risks remain elevated for the whole region. However, Georgia and Armenia maintain their leading positions according to the latest IMF forecast for the next five year growth, as you can see on the right hand side chart. So external sector inflows have been historically one of the main drivers of growth and currency values in Georgia and Armenia.
External sector inflows, traditionally a key driver of both growth and currency stability, have begun to normalise. In Georgia, inflows such as export proceeds, tourism revenues, and remittances remained resilient, showing a modest year-on-year increase in Q1 2025. In contrast, Armenia experienced a larger adjustment, mainly due to an unusually high base effect from the prior year. That said, both countries are now benefiting from the emergence of non-traditional, service-based inflows, particularly from IT and transportation services, which are proving more durable. These sectors have become significant contributors to hard currency earnings and productivity gains. Importantly, these inflows are helping to support the value of local currencies. The Georgian lari (GEL) and Armenian dram (AMD) both appreciated against the U.S. dollar in early 2025, aided by broader USD weakness. However, looking over a longer time horizon, this strength is also attributable to sound macroeconomic policies and sustained current account support. As a result, both currencies are expected to remain stable over the medium term. A macroeconomic environment of strong and diversifying inflows, sound policy frameworks, and low NPL ratios further supports Lion Finance’s opportunity to profitably expand credit in its core Georgian and Armenian markets.
A Banking Oligopoly
The Georgian and Armenian markets are highly concentrated. The Georgian market is dominated by a duopoly of TBC Bank (LON:TBCG), and JSC Bank of Georgia, a branch of GFS that enjoys 37.3% of the market by total loans; while the newly acquired Ameriabank CJSC, a branch of AFS that enjoys 20.3% of the Armenian market by total loans. A survey by IPM Georgia found that JSC Bank of Georgia is the most trusted universal bank in the country, while a survey by Invia found that Ameriabank is the leading and the top-of-mind universal bank in Armenia.
The World’s Best Digital Bank
In 2024, Global Finance named the JSC Bank of Georgia the world’s best digital bank, breaking Citigroup (C) multi-year stranglehold on that title. The bank was also named the Best Consumer Digital Bank. These awards recognise the bank’s customer-centric machine learning and AI-driven solutions, such as its retail financial super app and its business mobile apps. The bank’s mobile app is the dominant distribution channel, with 85% of loans and 74% of deposits now sold digitally. Its financial super app ecosystem includes daily banking, instant money transfers, card issuance, low-cost brokerage, bill payments, embedded insurance, loyalty programs, and even open banking integrations—all accessible from a single interface.
The platform’s growth is staggering: in Georgia alone, digital monthly active users (MAU) rose 17.1% year-over-year (YoY) to 1.65 million. User satisfaction remains industry-leading, with a Customer Satisfaction (CSAT) score of 91% and app ratings of 4.9/5 (iOS) and 5.0/5 (Android). Importantly, this growth is not confined to retail: digital adoption among SMEs is also rising, aided by end-to-end onboarding, digital underwriting, and merchant tools like POS analytics, inventory management, and business financing.
In Armenia, through Ameriabank, the group is replicating its digital success. Digital MAUs there jumped 53.1% YoY, reinforcing Lion Finance’s regional edge. Across both markets, the bank’s payments infrastructure is robust and fast-growing, with acquiring volumes rising 31.9% and monthly active card users approaching 1.5 million.
Lion Finance’s integrated, AI-enhanced, mobile-first model positions it as a technology company with a banking license, and arguably the most advanced digital banking platform in any frontier or emerging market globally.
Earning Attractive Profits
Lion Finance has a remarkable history of earning and growing attractive profits. Since 2020, the bank has compounded operating revenue by 25.63% a year, compared to a global mean and median 5-year revenue CAGR of 6.9% and 5.2% respectively. In each of the last five years, the bank has expanded its net operating profit after tax ((NOPAT)), with NOPAT compounding by 40.58% a year.
The rise in NOPAT was powered by an increase in NOPAT margin from 17.65% in 2020 to 30.98% in the last twelve months (LTM). In that time, the company’s invested capital turns, a measure of balance sheet efficiency, remained at 0.88. The combination of these two factors drove a rebounding of return on invested capital (ROIC) from a 2020 low of 15.48% to 27.16%.
Lion Finance’s ability to earn attractive profits allows it to earn significant free cash flow (FCF), with the firm generating a cumulative GEL2.14 billion since 2020, equal to around 19% of its current market cap. The firm’s GEL1.5 billion in FCF over the LTM equates to a 12.71% FCF yield. As Liqokeli explained, the bank expects interest rates in Georgia and Armenia to remain level throughout the rest of 2025. With the era of low and falling interest rates at a pause –in the longue durée, interest rates are falling-, growth alone will not be enough to attract capital. Firms that generate meaningful FCF will be rewarded and Lion Finance’s FCF generating business is a source of stability and safety.
A Fortress Balance Sheet
Lion Finance maintains a fortress balance sheet, underpinned by strong capital ratios, prudent asset quality, and ample liquidity. As of Q1 2025, the group’s Common Equity Tier 1 (CET1) ratio stood at 16.4% in Georgia and 14.7% in Armenia, both well above regulatory minimums. The total capital adequacy ratio (CAR) was 21.2%, and the liquidity coverage ratio (LCR) exceeded 133% in Georgia and a remarkable 230% in Armenia, reflecting conservative liquidity management even amid macro and political uncertainty. Notably, client deposits fund 63% of total liabilities, giving the group a high-quality, sticky funding base.
Asset quality is equally strong. As aforementioned, the group NPL ratio is just 2.0%, with adjusted coverage at 117.1% and a cost of risk of only 0.2%, far below the group’s long-term guidance of around 1%. Credit growth has been rapid, with loan book up 23.6% YoY, with underwriting remaining disciplined, high collateralisation levels and digital scoring models reinforcing risk controls. Conservative management is further highlighted by a loan-to-deposit ratio of 96.89%.
Built-In Structural Resilience
The bank is structurally resilient to financial and macroeconomic shocks, with internal stress-testing frameworks that model severe currency devaluation and liquidity disruptions. According to its Q1 2025 disclosures, the bank maintains sufficient capital buffers to withstand a 10% depreciation of the Georgian lari and Armenian dram, while keeping CET1 ratios above regulatory minimums in both jurisdictions. Liquidity is proactively managed at the subsidiary level, preventing contagion between jurisdictions. Each entity, the JSC Bank of Georgia and Ameriabank, operates with independent regulatory oversight, ensuring local compliance with Basel III liquidity and solvency standards.
Although the bank is not subject to European Central Bank (ECB) or Federal Reserve-style stress tests, management conducts internal scenario analyses that align with international best practices, incorporating macroeconomic, geopolitical, and idiosyncratic risks. Importantly, the group is not reliant on contingent capital instruments or central bank facilities, and its conservative loan-to-deposit ratio around 96.89% limits refinancing risk. With an exceptionally low cost of risk in a high-growth environment, and provisioning coverage exceeding 100%, earnings resilience in a downturn is highly probable. With its strong capital, liquidity, and risk governance, Lion Finance ranks among the most robust banks in the emerging market banking universe.
Priced for a 62% Decline in NOPAT
At the current price, Lion Finance has a price-to-economic book value (PEBV) of 0.38, implying that the market expects its NOPAT to permanently fall by 62% from current levels. Given the bank’s history, this is clearly a catastrophic scenario and the geopolitical risks entailed in ownership are likely responsible. The market has priced in disaster. Remarkably, this is the highest PEBV the bank has had in my analysis period. The bank’s current EBV, or no-growth value, is GEL699.45, equivalent to £192.65, an upside of 161.75% from the current price.
Using my reverse discounted cash flow (DCF) model, I tested a variety of scenarios to unearth the cash flow expectations baked into Lion Finance’s current stock price. Afterwards, I analyzed the implied value of the stock based on different and conservative assumptions to predict the bank’s future growth in cash flows.
In the first scenario, I used recent projections for revenue declines, and historical margins, to model the catastrophist scenario implied by Lion Finance’s current stock price. In this scenario, I assume:
- Revenue grows by an average of 34.95% a year, in line with the Financial Times’ consensus estimates, and,
- NOPAT margin falls to 9.36%, its lowest level in my analysis period.
In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, at which point its shareholder value per share equals the current price.
In the second scenario,
- Revenue grows by 25.63%, its 5-year CAGR, and,
- NOPAT margin remains at its LTM level, 30.98%.
In this scenario, the stock is worth GEL840.35 or ₤231.70, an upside of 231.53% from the current price.
In the final scenario,
- Revenue grows by 13.67%, its 3-year CAGR, and,
- NOPAT margin falls to 32.74%, its 3-year average.
In this scenario, the stock is worth GEL806.22, or ₤222.24, an upside of 200.73% from the current price.