(Corrects scope of move in first, second paragraphs.)
The stock jumped as much as 8.9 percent to 13.14 reais, the highest intraday price since Aug. 18. Cielo rose 7.7 percent to 13 reais at 11:44 a.m. New York time. Redecard SA (RDCD3), its largest rival, advanced the most in a week, rising as much as 5.6 percent to 23.82 reais.
Cielo reported net income of 424.7 million reais ($263 million), surpassing the estimate of all 10 analysts in a Bloomberg survey. The average forecast was for net income of 394 million reais. Cielo said it processed a total of 70.2 billion reais of transactions in the quarter, 20 percent more than a year earlier. The results spurred Credit Suisse Group AG to raise its rating to “neutral” from “underperform.”
“While overall expectations pointed toward increasing costs and expenses on a per transaction basis, Cielo was able to post improved operating performance,” Marcelo Telles, a Sao Paulo-based analyst at Credit Suisse, wrote in a note to clients today. “Better cost efficiency should enable Cielo to, at least partially, offset the still very challenging environment.”
Cielo has surged 47 percent from a record low in February on speculation card companies will start to prize profitability over greater market share. Redecard has gained 33 percent in that period.
The companies slumped last year after losing their exclusive rights to handle payments for Visa Inc. and Mastercard Inc., respectively. Shares have also suffered as smaller rivals enter the market, such as the venture formed in December by Citigroup Inc.’s Credicard unit and U.S. Bancorp’s Elavon unit.
Cielo’s Chief Executive Officer Romulo de Mello Dias, on a conference call with analysts today, said competition has been easing since that month.
“We are encouraged by cost evolution and momentum in the prepayment business at Cielo,” Saul Martinez, an analyst at JPMorgan Chase & Co. in New York, wrote in a note to clients dated yesterday.
“The quarterly results reinforced our preference for Cielo over Redecard,” wrote Martinez. “Costs and prepayments are a headwind currently at Redecard.”
Redecard last week reported a 20 percent decline in quarterly profit, in line with analysts’ estimates.
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