Cielo Falls After Itau BBA Cuts Stock to Hold on Regulatory Risk

Cielo SA, Brazil’s biggest processor of credit-card payments, declined to the lowest in three weeks as the investment bank Itau BBA cut its rating to hold, saying the stock carries regulatory risks with limited upside.

The shares retreated 0.7 percent to 52.34 reais at 4:36 p.m. in Sao Paulo, the lowest price on a closing basis since April 29. Brazil’s benchmark Ibovespa index added 0.3 percent.

Itau BBA cut its recommendation on Barueri, Brazil-based Cielo to the equivalent of hold from buy, according to a note yesterday to clients. Last week, the senate leader of Brazil’s biggest opposition party, Aloysio Nunes Ferreira of Sao Paulo, proposed a bill that would limit charges by card processors and allow retailers to offer discounts to clients who pay with cash instead of plastic.

The legislation signals “increased regulatory risks” for the industry, the analysts wrote, Alexandre Spada, Regina Longo Sanchez and Thiago Bovolenta Batista. “If the bill is approved as-is, depending on the cap levels eventually introduced, Cielo’s profitability could be noticeably reduced.”

While the stock has climbed about 10 percent this year, the analysts kept their 12-month price target for Cielo at 57.10 reais. At current price levels, there is “limited” potential upside for the stock, according to the note.

The senator’s proposal is awaiting the designation of a sponsor who can present the bill to the committee responsible for economic matters, according to his website.

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