Cielo catches competitors but pays dividends between 70% and 100% of results

SÃO PAULO – Cielo (CIEL3) announced Monday night (28) its results for the fourth quarter of 2018, in addition to the annual survey. As expected, the figures appeared weak, thanks to the evolution of the competitiveness of the acquisitions sector in the country.

Despite the low expectations, some figures have disappointed. Operating expenses, for example, were R $ 511 million, 20% above the average market forecast as calculated by Morgan Stanley.

Net income for the quarter is also below market expectations. This indicator stood at R $ 724 million, down 30.6% from the same quarter in 2017 and 10.1% below market estimates.

Despite the low numbers, the company has guaranteed in its teleconference on the results. which will maintain the dividend distribution policy to shareholders between 70% and 100% of the result. "The company is very well capitalized," said Paulo Caffarelli, CEO recently inaugurated at the end of last year, making sure to maintain good relations with investors, even in difficult times.

Shielding

Leader in the machine market, Cielo is experiencing a change of scenery. If previously, he was practically unpunished, he must now defend against emerging players such as Pagseguro, Stone and Getnet. According to Caffarelli, the priority now is to maintain market share, rather than profit margin.

To do this, the company not only lowered its prices, but also invested in marketing, with new advertisements, as well as in strengthening its sales team and recruiting a specialized consulting firm in operational efficiency. . To attack the SME market, the main badet of its competitors, Cielo has hired 500 subcontractors focused solely on these customers.

Caffarelli also bets on capillarity to take advantage of the expected recovery of the Brazilian economy. "Our product is a commodity, it wins that brings more value," said the CEO. "By the time you are going to sell a Cielo machine, you have a lot of knowledge."

Analysts point out that the strategy gives preliminary signs of success. The base of terminals distributed by the company is finally starting to grow, reminded Plural Brazil in a report.

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While the number of machines hired timidly increased for the first time in 3 years (from 1,550 to 1,552), "the increase in point-of-sale sales may have been the only positive quarter, "said the bank. The number of active terminals sold was 269,000, compared with 109,000 in the previous quarter (147% increase).

The company announced consolidated net income of between R $ 2.3 and 2.6 billion. which would represent a decrease of nearly 30% compared to the result of 2018 (profit of R $ 3.3 billion) for a year considered "adjustment" and "reformulation of society". The coming months will continue with a significant investment in marketing and, most importantly, in customer relations, "said the managing director.

Another aspect deemed positive by the executive is the change in market regulation payments by the Central Bank in force on the 31st of this month, although created at the request of small creditors, Caffarelli believes that Cielo (as we know) can benefit from the rule that eases the anticipated debts, allowing merchants to choose the bank that will grant them the credit

The competition continues

But while Cielo improves his shield, the competitors invest in weapons.The industry badysts expect that the coming months continue to punish the market leader of the means of payment.

Alexandre Spada of Itaú BBA issues a recommendation to buy the company, but he Still speculates that "The earnings momentum of the company remains very weak, preventing multiples from growing well above their current levels after a strong performance early in the year," he wrote in a report.

It should be remembered that Cielo, after having consolidated the biggest fall of the Brazilian stock market in 2018, peaked at 20% in early 2011. At the trading session on Tuesday (29) after the result, the company's share dropped by 5.19%, but losses were reduced to 0.69% to 10.50.

For Caffarelli, the effects of investment in marketing and prices should only begin to reverse the trend of loss of market share in the coming quarters. "We have seen a slowdown in customer loss," he said.