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It cannot be denied that, at least on paper, the Lloyds Banking Group (LSE:LLOY) share price offers attractive overall value.
At 41.7 pence per share, the FTSE 100 The bank trades on a forward price-to-earnings (P/E) ratio of 5.3 times. It also offers a powerful dividend yield of 6.7%.
I’m a big value investor, but I’m not tempted to buy Lloyds shares for my portfolio.
Well, the company has one of the most trusted names in the business, which, in turn, helps it gain and retain new customers. But Black Horse Bank still faces significant risks as the British economy stagnates. Loan growth may disappoint and bad loans may remain well above historical levels.
That’s why I prefer to invest my hard-earned money in TBC Banking Group (LSE:TBCG) instead.
A better buy
The challenge facing UK-focused banks is not just a reflection of the difficult economic climate. Naturally, growing business is more difficult in mature markets like this than in certain overseas countries.
This is one of the reasons why I prefer to invest in TBC Bank of Georgia. A combination of low penetration of financial products and strong economic growth leaves plenty of room for the Eurasian country’s banking industry to expand.
He FTSE 250 The company’s latest financial statements this week illustrate the huge potential here. Net interest income rose 25.7% during the third quarter to 427.9 million Georgian lari (£130 million).
Businesses have benefited from Georgia’s continued economic strength: the country’s GDP expanded 5.4% between July and September. This is significantly larger than the 0.6% increase recorded in the UK during that time.
bright perspective
Credit demand is increasing and TBC Bank’s gross loan portfolio increased by 17.3% year-on-year to 20.4 billion lari in September. This allowed the bank to increase operating profit by 4.3% during the period to 615,219 lari.
Encouragingly for the bank, economists predict the Georgian economy will maintain its impressive recent momentum. The World Bank, for example, expects GDP growth to improve from 4.4% this year to 5% in both 2024 and 2025.
TBC’s focus on fast-growing digital banking gives it room to grow revenue ahead of the broader market as well. The number of monthly active digital users on its books rose to 4.5 million during the third quarter, from 3.2 million a year earlier.
Excellent value
I don’t think this bright prospect is included in TBC Bank’s valuation. At £27 per share, the company trades on a forward P/E ratio of 4.5 times. Surprisingly, this is also below the corresponding earnings multiple for Lloyds shares.
I also think TBC is a more attractive stock based on projected dividends. Its 6.5% profitability by 2023 lags that of Lloyds. But predictions of sustained dividend growth lift the reading to a higher figure of 8.9% by 2025. And expected dividends will be covered between 3.2 and 3.4 times over the next three years.
The bank’s profits could take a hit if the global economy enters a significant recession. But overall, I think it’s an excellent value stock to buy.
