Heaven (CIEL3): “We are certain that we operate without subsidies, but with quality”; Balance pleases the market, but shares fall 1%

Cielo (CIEL3) had a 2022 marked by a turn around. The company, which had been suffering for a variety of reasons, has managed to rally the market while maintaining its profitability – and its shares have responded to that, with Ibovespa surging higher last year.

For 2023, according to executives, the acquirer intends to follow the same path, improving its operations and increasing its profitability rates.

Cielo achieved net and recurring income of R$ 490.1 million in the fourth quarter of 2022, an amount 63.3% higher than that recorded in the same period of 2021. Earnings before interest, taxes and amortization ( Ebitda) totaled R$ 1.09 billion, a growth of 40.4% on the same basis. All this with revenue down 12.3% to R$2.75 billion.

In large part, the company has long stressed that part of its woes in recent years was due to “market irrationality” – with competitors keeping service rates at rock-bottom levels. Cielo, in the last 12 months, has lost about 12% of its customers, with this decline mainly due to the group of entrepreneurs.

“We are sure that we are operating without offering subsidies, we left them in 2019, but of quality. We seek financial efficiency. We are updating processes, which can bring efficiencies that will last. We want to treat each customer segment in a special way, customizing solutions and providing security,” said Cielo executive director, Estanislau Bassols, in a conference call with reporters.

Administrators defend that the operational change has resulted in a much healthier user base, with only retaining customers who “need the services the company offers.” The number of users in the retail group, for example, has grown and the large account group has remained virtually unchanged.

Read more: Check out the Brazilian Stock Exchange’s Q4 2022 results calendar

For 2023, Cielo sees room for a possible increase in prices, while defining these choices as “volatile”, and is also optimistic for the sector, despite the macro scenario.

Room to raise rates

“Regarding the fees charged, the market overrides the price, first due to inflation, then due to the minimum shareholder return. We see, this year, that some elements of these two are still present. Interest rates, for example, remain high, so shareholder returns should remain high. We see our colleagues still with low margins,” defended Filipe Oliveira, the company’s CFO.

In the macro scenario, Cielo states that household consumption is still healthy and that the penetration of electronic means of payment continues to grow.

In any case, the company’s directors say there will also be operational improvements in the future.

“We are pursuing our strategy. The first pillar is making sure that, within our core, we will be leaders in service and efficiency. We ensure that we are automating processes. Furthermore, we want to treat each customer segment in a special way, customizing the solutions and gaining security”, commented the Chief Executive Officer. “Second pillar, innovation in payments. At this point, Cielo offers the best solutions, both in pix and in open finance”

Cielo intends, throughout 2023, to advance in the customer experience, improving indices on this front – such as the time spent, for example, to solve user problems, which according to the company is already decreasing.

“2022 was a historic year, with a recovery in several indicators. transaction volume [TPV, na sigla em inglês] it was a record and we stabilized ours market share even with a higher profitability of the volume traded. We have completed the divestment cycle and have had strong cost discipline. We’ve also made progress in customer experience. We want to move forward on this, especially by bringing NPS. Our goal is to maintain profitability and further advance our digital experience,” Oliveira said.

Analysts highlight Cielo’s operational progress

The advances cited by Cielo’s administrators were also reported by analysts, who, in general, defined the numbers contained in the document as positive.

Despite this, the stock closed down 1.13% to R$5.23, still below the 1.63% drop in Ibovespa in Friday’s session and the 4 devaluation, 91% of the CIEL3 at the low of the day. It should also be noted that the stock came from a sequence of four trading sessions with increases, with an accumulated advance of 8.85%, already anticipating the strong numbers released by the company the night before. At the open, the CIEL3 asset is up 3%.

Credit Suisse stressed that operating revenues, at R$2.75 billion, were in line with the consensus, but stressed that operating costs and the financial result were better than expected.

“Profitability has continued to improve well. Recurring earnings before interest, taxes and amortization (EBITDA) beat our consensus by 5%. Financial results were also better than expected and Capex remained under control,” they discuss.

Santander, in a report, also called the revenue yield positive, but argues that “the main highlight was Cielo’s strong cost control, both on the corporate acquisition front and in Cateno’s operations.”

“Cielo continues to do a good job of controlling costs and expenses, in our view. Total costs increased by just 1% in the quarter, substantially below the 5% expansion in volume”, argue the analysts of the Spanish bank.

Finally, Itaú BBA claims that the results have been moderate.

“Comparable revenues grew 18% year-over-year due to a mix of better volumes (+11%) and better rates. On a quarterly basis, the price charged was almost unchanged, while volumes were slightly below our expectations. The customer base has continued to decline, but operating margins have improved, offsetting the slight lack of volumes,” they point out.

The three banks have a recommendation far surpass (performance above the market average, equal to the purchase) for Cielo ordinary shares. Credit Suisse has set its price target at BRL 7, a potential increase of 29.1% from today’s opening price. Santander sees a potential increase of 38.3%, with a target of R$7.50. Finally, Itaú BBA sees BRL 6 as a fair price for buyers, a figure 10.7% higher than at the start of negotiations this Friday.

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