You can also check the FCF figures in the report. You are right maybe I should use those. For investment stage companies they dont make much sense though. FCF generation is pretty good though!
Hello Oscar, I just wanted to let you know that I read your article with Interest. I have referenced it in my own article which is here. https://theoakbloke.substack.com/p/introducing-cgeo-capital-georgia?sd=pf - I would be interested in your feedback, also because I note you appear to have since sold CGEO. Do you regret that sell?
Hi! Nice writeup, thanks for referencing mine, glad you liked it!
The reason why I sold (at 1025 GBX, around current price) is not fully related to valuation. With countries where geopolitical risk is high and I could get zeroed at some point in time (such as if Russia attacks Georgia or any other black swan event, not saying this will happen) sometimes I sleep bad holding the positions, it might be irrational, but it was getting me increasingly concerned and I sold and added to PAGS. When I sold at the end of September, PAGS (another of my writeups) was trading at depressed prices with huge tailwinds. Additionally, in my opinion, Brazil has less geopolitical risk than Georgia, so I made the change.
Regarding the valuation of CGEO:
>Most of the NAV increase was due to the BGEO re-rating, and I am not sure how BGEO will do with lower interest rates. I think it will do good, but ROE is probably inflated
>Initially I thought that a 0.6x price to book would be more appropriate than current 0.45x, which would mean that CGEO still has 35% multiple expansion plus buybacks plus NAV growth. I am not so sure about price to book though, I think that the multiples that the valuation agency assigns to their portfolio companies might be a bit inflated, so maybe it's not so undervalued.
>I still think CGEO is a bargain, but it's the geopolitical risk that troubles me. I like the deleveraging (new cash from ops and dividends reduces debt, which increases equity and lowers interest payments) and the buyback strategy. For some reason, I cannot get myself to buy it back right now.
When I started investing I was comfortable investing in countries with high geopolitical risk, but, as time goes buy, I think this risk is not so worth it, you can get good returns without this risk investing elsewhere, but it's harder to get bargains. CGEO capital allocation has been great though and if this risk does not materialize Im sure they will do great, but who knows, maybe Russia one day goes for Georgia as they went for Ukraine (hope not!).
Feel free to DM me on twitter so I can follow you @oscar100_x
Great Write up, but why you use EBITDA and not an other Buisness ratio?
You can also check the FCF figures in the report. You are right maybe I should use those. For investment stage companies they dont make much sense though. FCF generation is pretty good though!
Thank you! Im a little unsure because Georgia is such a small country. How big is your Position in this Stock?
7%
Hello Oscar, I just wanted to let you know that I read your article with Interest. I have referenced it in my own article which is here. https://theoakbloke.substack.com/p/introducing-cgeo-capital-georgia?sd=pf - I would be interested in your feedback, also because I note you appear to have since sold CGEO. Do you regret that sell?
Hi! Nice writeup, thanks for referencing mine, glad you liked it!
The reason why I sold (at 1025 GBX, around current price) is not fully related to valuation. With countries where geopolitical risk is high and I could get zeroed at some point in time (such as if Russia attacks Georgia or any other black swan event, not saying this will happen) sometimes I sleep bad holding the positions, it might be irrational, but it was getting me increasingly concerned and I sold and added to PAGS. When I sold at the end of September, PAGS (another of my writeups) was trading at depressed prices with huge tailwinds. Additionally, in my opinion, Brazil has less geopolitical risk than Georgia, so I made the change.
Regarding the valuation of CGEO:
>Most of the NAV increase was due to the BGEO re-rating, and I am not sure how BGEO will do with lower interest rates. I think it will do good, but ROE is probably inflated
>Initially I thought that a 0.6x price to book would be more appropriate than current 0.45x, which would mean that CGEO still has 35% multiple expansion plus buybacks plus NAV growth. I am not so sure about price to book though, I think that the multiples that the valuation agency assigns to their portfolio companies might be a bit inflated, so maybe it's not so undervalued.
>I still think CGEO is a bargain, but it's the geopolitical risk that troubles me. I like the deleveraging (new cash from ops and dividends reduces debt, which increases equity and lowers interest payments) and the buyback strategy. For some reason, I cannot get myself to buy it back right now.
When I started investing I was comfortable investing in countries with high geopolitical risk, but, as time goes buy, I think this risk is not so worth it, you can get good returns without this risk investing elsewhere, but it's harder to get bargains. CGEO capital allocation has been great though and if this risk does not materialize Im sure they will do great, but who knows, maybe Russia one day goes for Georgia as they went for Ukraine (hope not!).
Feel free to DM me on twitter so I can follow you @oscar100_x