Magazine Luiza Surges on Credit Card Profit: Sao Paulo Mover

Magazine Luiza SA (MGLU3), Brazil’s worst-performing retailer this year, rose the most on record as its credit card unit’s profit exceeded the forecasts of Itau BBA.

Shares rallied 31 percent to 6.49 reais at 3:04 p.m. in Sao Paulo, the biggest intraday gain since they started trading in May 2011. It was the best performance on the BM&FBovespa Small Cap index, which declined 0.7 percent.

The Franca, Brazil-based retailer reported in a regulatory filing yesterday that adjusted earnings before interest, taxes, depreciation and amortization increased 14 percent to 95 million reais ($41 million) for the quarter ended in June. Ebitda from the LuizaCred credit card unit was 18.4 million reais, compared with Itau’s projection of 7.4 million reais.

“Where the company most significantly surpassed our estimates was at LuizaCred,” Itau analysts Vitor Paschoal and Rachel Rodrigues wrote in a research note to clients.

The shares have plunged 45 percent this year and trade at 12.3 times analysts’ earnings estimates. That compares with a 17 percent decline in the BM&FBovespa Small Cap index, which trades at a multiple of 17.5.

“We see Magazine Luiza as a high-risk, high-return investment story, because we believe that the company could be worth more than what the market is currently willing to pay, but our visibility on its longer-term prospects is limited at this point,” wrote Paschoal and Rodrigues, who have a recommendation equivalent of buy on the stock.

To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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