Cielo Profit Rises 21% After Merchant E-Solutions Deal

Cielo SA, Brazil’s biggest payments processor, said fourth-quarter profit climbed 21 percent, matching analysts’ estimates, on a gain in revenue after the acquisition of Merchant e-Solutions.

Net income rose to 610.3 million reais ($310.4 million) from 504.5 million reais a year earlier, before the purchase, the Barueri, Brazil-based company said yesterday in a filing after the market closed. The average estimate of nine analysts in a Bloomberg survey was for profit of 606.8 million reais.

Cielo, led by Chief Executive Officer Romulo de Mello Dias, 51, said sales rose at a faster pace as it integrated Merchant e-Solutions, which it agreed to buy in July for $670 million to expand in the U.S. Net revenue rose 34 percent to 1.61 billion reais in the fourth quarter from a year earlier, after expanding 27 percent in the third quarter, according to the filing.

“Despite pressure from regulators, banks and merchants, we believe Cielo’s scale, distribution dominance and new services to clients should allow it to sustain high single-digit earnings-per-share growth and a 5 percent dividend yield,” analysts at brokerage Brasil Plural CCTVM SA including Eduardo Nishio wrote in a report to clients today.

Cielo fell 2.4 percent to 55.14 reais in Sao Paulo, compared with a 1 percent decline for the benchmark Bovespa index.

Volume Growth

Transaction volume climbed to 106.9 billion reais from about 95 billion reais a year earlier, according to the filing. Operating expenses were 265 million reais, a 32 percent increase from the fourth quarter of 2011.

Cielo expects net income to grow 7 percent to 10 percent in 2013, Dias told analysts on a conference call today. This year, the company will expand slower than Brazil’s card industry because of tougher competition, he said. Cielo forecasts Brazil’s card industry will expand 15 percent to 18 percent, he said.

Brazil’s booming payment-card industry lured companies including Santander Brasil SA in 2010 and Elavon Inc. in July to compete against Cielo and its main rival, Redecard SA, which was bought by Itau Unibanco Holding SA in September. Sao Paulo-based Itau paid 11.8 billion reais to acquire the 50 percent stake it didn’t already own in Redecard and delist it from the Sao Paulo exchange.

“Cielo’s challenge can’t be minimized,” Dias said, adding that he estimates the new players in Brazil’s card industry will have a market share of 15 percent to 20 percent in the next two years. “This will dilute our market share.”

The company stopped disclosing some earnings items, including the merchant discount rate, because none of its competitors are required to release the figures. Dias said the current disclosure level is “good” and “appropriate” for the market.

To contact the reporter on this story: Francisco Marcelino in Sao Paulo at mdeoliveira@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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