Cielo SA, Latin America’s biggest card-payment processor, is one of Allianz Global Investors’s top Brazilian stock picks as it benefits from resilient consumer demand even as growth slows and inflation remains high.
“The only silver lining is still the Brazilian consumer,” Kunal Ghosh, a San Diego-based emerging-market portfolio manager at Allianz, which has $436 billion in assets under management, said in a telephone interview. “In spite of inflation, in spite of slow economic growth, they’re still spending.”
Cielo is the best opportunity to profit from consumer strength, Ghosh said. The company, which is among the top three performers in the Ibovespa when adjusted for volatility in 2013, earns money by collecting a fee each time a card is swiped and doesn’t face the same margin contractions as retailers, which are more affected by inflation that has been above the midpoint of the central bank’s target for three years.
Family and government consumption grew by 1 percent and 1.2 percent respectively in the third quarter, when gross domestic product shrank 0.5 percent, the national statistics agency said Dec. 3. Consumption will be higher in the fourth quarter, Finance Minister Guido Mantega said on a conference call the same day.
Consumer prices increased 5.77 percent in November from a year earlier, the statistics agency said today, below the 5.81 percent median estimate of economists surveyed by Bloomberg. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.
Analysts covering Cielo forecast that growth in adjusted net income will slow to 12 percent next year from an estimated 14 percent this year and a 29 percent jump in 2012, according to survey data compiled by Bloomberg.
Ghosh said Allianz is also betting on exporters including steelmaker Usinas Siderurgicas de Minas Gerais SA to take advantage of the drop in the Brazilian real, the biggest among 16 major dollar counterparts this quarter. The currency, which has fallen 4.9 percent since the end of September, could weaken further as Brazil faces a presidential election in 2014, which will “complicate the scenario even more,” he said.
Allianz also holds stock in insurer Porto Seguro SA and utility Cia. Energetica de Minas Gerais, Ghosh said.
Cielo reached a record high of 68.70 reais on Nov. 4, pushing its valuation to 18.3 times estimated earnings for the next 12 months, the highest on record. The shares have since pared their yearly advance to 38 percent, closing at 65.50 reais today.
Usiminas, as Usinas Siderurgicas is known, has climbed 3.9 percent this year, while Porto Seguro has advanced 21 percent. Cemig, as Cia. Energetica is also known, has lost 6 percent this year. The Ibovespa is down 16 percent.