Cielo (CIEL3): Will the 2nd quarter result justify a jump of more than 90% in the stock in the year?

After years of decline with falling profitability and greater competition, Cielo’s shares (CIEL3) have once again drawn the attention of investors and market analysts with signs of recovery in the machine company. With more optimistic projections and better numbers, only in the accumulated of 2022 (until the closing of last Monday) the shares have already registered gains of 92%, at R$ 4.35, while the Ibovespa has a fall of 2.47% in the same period.

In this way, the company’s second quarter 2022 (2Q22) results, to be released this Tuesday (2) after the market closes, will be closely monitored by investors. Market analysts expect strong numbers, although there are different views on the company’s next steps on the Stock Exchange.

The Refinitiv consensus with market analysts projects an increase in profit of 58% on an annual basis, to R$ 285 million, while the expectation is for an increase in earnings before interest, taxes, depreciation and amortization (Ebitda, the acronym in English). ) is R$891 million in the quarter, up 53% over 2Q21. As for revenue, a more modest increase of 1% is expected, to R$2.843 billion.

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Last month, Itaú BBA raised the recommendation for the machine company to equivalent to the purchase, due to the expectation of strong volumes and growth for the industry, with a slight impact on repricing.

Analysts expect earnings of BRL 300 million for the quarter and BRL 1.1 billion for the year (versus a previous forecast of BRL 985 million), explained by revenue growth, lower acquisition costs and better results. to Cateno.

The acquirers Stone and PagSeguro, listed in the US, should continue to recover, but with less breath than in previous quarters, they assess.

JPMorgan, which raised Cielo’s buy recommendation in May after five years of alternating between neutral and sell recommendations, projects a profit of R$240 million in the second quarter of 2022, totaling R$968 million for the year as a whole. (the estimate for annual profit was raised by 14% in July, with the previous forecast being R$ 851 million). For the next year, the forecast went from R$ 791 million to R$ 971.4 million.

“The increase was mainly due to the higher volume expected from the industry, which benefits Cielo Brasil and, also importantly, the Cateno card business”, they pointed out in last month’s report.

The analysts also incorporated in their numbers the sale of Cielo’s stake in the American company Merchant E-Solutions, which, they estimate, will generate a gain of BRL 20 million to BRL 40 million per quarter starting in the third quarter of 2022, with partial impact in the second quarter.

Goldman Sachs also expects Cielo to be the industry leader, with solid results and net margins of over 10%. For the bank, the results of the machine companies – in addition to Cielo, Stone and PagSeguro – should be positively impacted by the healthy growth of TPV (total volume of payments), while there are other repricing efforts that benefit participation rates.

“We expect industry TPV in Brazil to grow 30% YoY (up 3% QoQ) in 2Q22, decelerating from the strong 36% YoY rate in 1Q22. Cielo should gain the highest market share in 2Q22 among peers, as we expect it to show healthy volume growth in the quarter, but still losing market share compared to 2Q21. We expect Cielo’s total POS market share to increase to 27.7% in 2Q22, from 26.7% in 1Q22, but slightly down from 27.9% in 2Q21,” Goldman said.

Likewise, analysts expect PagSeguro and Stone to grow their TPV slightly above the industry in the quarter, gaining modest market share in volumes in 2Q22, with a 0.2 percentage point increase to 11.0% for PagSeguro and a rise of 0.1 percentage point, to 11.3% for Stone.

Goldman expects Cielo’s profit to increase 51% on an annual basis, to R$279 million. Net financial expenses are expected to increase due to higher interest rates. However, total expenses are expected to decline in the quarter, with the Ebitda margin (Ebitda over net revenue) expanding from 31.5% in 1Q22 to 37.4% in 2Q22.

While JPMorgan and BBA are more optimistic about Cielo, Goldman has a sell recommendation for the assets, with a target price of BRL 2.70 (a drop of 38%). Despite seeing good numbers in the 2nd quarter, the bank believes that the long-term outlook for the company remains challenging.

“The stock is trading at 10.2 times expected 2023 P/E, while our price target implies it should trade at 6.3 times. Key upside risks include: 1) re-pricing, which could lead to a better acceptance rate, 2) better customer service, which could lead to greater market share, and 3) margins, which could improve more than expected due to the increased focus on costs”, assess the bank’s analysts.

JP has a R$5.50 target price for CIEL3 assets (26% upside potential), while BBA has a R$5 target price (or 15% upside).

According to a compilation by Refinitiv with market analysts, of the 13 houses that cover the paper, 3 have a buy recommendation, 8 a neutral recommendation and 2 a sell recommendation, with an average target price of R$ 3.92 (approximately 10% lower than the than the closing of the day before).

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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