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Cielo SA

Area: Brazil - EM exposure

Cielo is the largest Brazilian credit and debit card operator. Cielo is the biggest payment system company in Latin America by revenue and market value.


I came across this company from Consuelo Mack's show Wealthtrack

One of the companies David Winters has been buying (Jul 2013) was Cielo (CIOXY), Like his thesis on Mastercard (MA), his play on Cielo is the secular shift from cash to plastic. Cielo is a payment processor that has 50% market share and trades at 13x earnings. While short-term Brazil might face headwinds, he likes the opportunity long-term as 190 million people can start paying via credit/debit cards.

Read more:
The Massive Growth Potential of Brazilian Credit Cards

By Matthew Luke | More Articles | Save For Later
October 18, 2013 | Comments (0)

Among the emerging markets, Brazil has one of the most technologically advanced credit card industries. Compared to developed nations like the United States, however, this industry of Brazil is still in the very early chapters of its growth story. Imagine if it were possible to travel back in time and invest in Visa's (NYSE: V ) U.S. operations about two decades ago, back before e-commerce was mainstream. That's the type of growth opportunity Brazil's credit card industry presents investors today.

Source: Nicolas Raymond.

As a percentage of personal consumption expenditure (PCE), Brazilian card payments in 2011 were only 26.7%, or about the same percent the United States had back in 1998. In 2011, the U.S. came in at 48.1% of PCE. In 2010, the number of transactions per card in Brazil were just 11.2 compared to the United States' 58.6 transactions per card. Needless to say, Brazil still has a long way to go to reach the level of U.S. credit card use.

The Visa of Brazil
The largest payment system company in Brazil by revenue -- USD $2.5 billion in 2012, up 28% from 2011 -- Cielo (NASDAQOTH: CIOXY ) is essentially the Visa of Brazil. Formally called VisaNet, Cielo was formed as a joint venture between Visa and three major Brazilian banks back in 1995. The company was responsible for processing every Visa credit and debit card transaction in Brazil.

That was until July 2010, when new bank regulations introduced multi-brand rules for the country. Now other Brazilian payment system companies are allowed to process Visa card transactions, and Cielo is allowed to process brands previously exclusive to other companies. Today, Cielo is a processor of multiple international, regional, and local private label card brands.

Much like Visa, Cielo is not actually a financial company. Cielo does not issue any credit cards, extend any lines of credit, or collect on any debts. All of that is the responsibility of the issuing banks. Cielo is simply a technology company responsible for connecting customers, business, and banks together through its electronic payment network. Once that network is in place -- currently present in 99% of Brazilian municipalities -- there is actually very little capital expenditure requirements.

Cielo simply collects a fee for each transaction that occurs over its network (5.3 billion individual transactions in 2012). This makes Cielo a very low-risk, high cash generating business. This is why Cielo is able to implement an extremely shareholder-friendly policy of paying at least 50% of the company's net profit as a dividend.

The American Express of Brazil
Owned by the largest financial institution in Latin America, Itau Unibanco's (NYSE: ITUB ) Redecard is the second largest payment system in Brazil.

Redecard is very similar to Cielo in nearly all respects. Redecard is available throughout the majority of Brazil, has low capital expenditure requirements, and generates a ton of cash. Like Cielo before the 2010 regulatory changes, Redecard was the exclusive payment system provider for every MasterCard and Diners Club card transaction in Brazil. Today, the multi-brand Redecard now adds Visa and others to its very large portfolio of card brands.

Also under the Itau Unibanco corporate umbrella is another payment system called Hipercard, the third largest payment system in Brazil. In 2012, Redecard and Hipercard together processed over 3.3 billion credit and debit card transactions and totaled over USD $1.77 billion in revenue for Itau Unibanco's card transaction division.

Hipercard is very different from Cielo and Redecard in one important aspect, though. Hipercard began its life as a supermarket loyalty card in the 1970s, and then a supermarket store card with its own revolving line of credit in the 1980s. But slowly, over the years, it transformed itself into its own independent credit card company akin to American Express.

In addition to operating its own payment network, Hipercard is also a bank that issues its own brand of cards and loans its own money, following the American Express business model. Today, Hipercard is a nationwide credit card brand with over 13.5 million cards accepted at establishments all throughout Brazil.
I am vested in this company.
The 'disadvantage' of this trade is
1. unavailability of news on the web - to overcome, i subscribe directly to CIELO IR alerts
2. quotation of prices are non-existant because of its illiquidity

Though i am hopeful that Brazil as a young nation, will see more plastic penetration / spending and Worldcup fever!
sorry, this is an OTC instead of ADR
It is available on Nasdaq market
Cielo SA
Average volume 2.05m
Shares outstanding 786.12m
Free float 561.09m
P/E (TTM) 19.13
Market cap 51.22bn BRL
EPS (TTM) 3.41 BRL
Annual div (TTM) 2.28 BRL
Annual div yield (TTM) 3.49%
Next div ex-date Mar 17 2014
Next div pay-date Mar 31 2014

Gross margin 62.14%
Net profit margin 39.81%
Operating margin 47.28%

Return on assets 22.97%
Return on equity 93.42%
Return on investment 43.02%

Div yield(5 year avg) 3.68%
Div growth rate (5 year) 26.93%
Payout ratio (TTM) 65.66%

EPS growth(5 years) 14.81
EPS (TTM) vs TTM 1 year ago 14.92

Cash flow per share 3.91
Price/Cash flow per share 16.67

Book value per share 4.23
Tangible book value per share 1.58

Current ratio 1.43
Quick ratio --

Total debt/total equity 0.7496
Total debt/total capital 0.4276

Solid performance can be explained by Carnival falling in March this year, unlike 2013; historically, the holiday has a negative impact on sales.

Barueri, March 17, 2014 - The Cielo’s Amplified Retail Index – Índice Cielo do Varejo Ampliado (ICVA), released by the company this Friday (14th), shows growth of 17.4% in
nominal sales revenue this February compared to the same month last year. Adjusted for inflation, the increase was 11.4%. In January, the ICVA showed growth of 15.9% in the year- over-year comparison.

One of the reasons behind the sector ́s solid performance this month is the impact of Carnival, which fell in March this year, unlike 2013, when it was in February. "Our data shows us that retail sales are weaker during Carnival. The impact of lower sales during the period should be observed in the indicator for March”, reports Gabriel Mariotto, Manager of Cielo ́s Intelligence area. The expectation is that after discounting, the February growth rate will be around 3 percentage points lower – which would indicate a slowdown in retail sales activity in February compared to January.

Among the sectors driving growth in retail activity during the month were drugstores and pharmacies, building materials and gas stations. The clothing segment, which had weaker sales during the end of 2013, showed a recovery in the growth of nominal sales revenue. The Supermarkets and Hypermarkets sector, one of the positive highlights from January, demonstrated a slowdown last month.

Considering the impact of inflation, the drugstore and pharmacy and gas station sectors continued their good performance, while the building materials segment was more impacted by prices and registered a smaller uptick considering deflated ICVA.

At a regional level, the Northeast led the way with an 18.8% increase in nominal sales revenue, followed by the North (17.8%) and Midwest (17.7%). The Southeast region registered an increase of 17.3%, slightly below the ICVA ́s national average. The South, in contrast to its January performance, recorded an increase below the average for Brazil, with retail growth of 16.5% in February.
The Cielo’s Amplified Retail Index - ICVA will monitor monthly retail performance based on nominal sales revenue, considering a group of 24 sectors mapped by Cielo, from small store owners to large retailers.

Calculation of the ICVA
The ICVA has no correlation with Cielo ́s financial performance. To create a neutral indicator, that reflects only economic activity and the appetite for retail consumption, without any interference in the results, the company developed mathematical models to isolate the effects of the competitive behavior of the merchant accreditation market – such as, for example, changes in market share. The effect of more cards in the economy, through the replacement of checks and cash, was also isolated.

The data used to calculate the Index is captured in an aggregated form, from the base of 1.4 million active points of sale accredited to Cielo throughout Brazil, both in physical stores and through mobile and e-commerce channels.

Barueri, March 17, 2014.
Chief Financial and Investor Relations Officer
Corporate Taxpayer’s ID no. 01.027.058/0001-91
Corporate Registry no. 35.300.144.112

Notice to the Market

Cielo signs Memorandum of Understanding for a stake at Stelo, a new facilitator for online payment and digital wallet

Barueri, April 16, 2014 - CIELO S.A. (BOVESPA: CIEL3 / OTCQX: CIOXY) informs that has signed a Memorandum of Understanding with Cia. Brasileira de Soluções e Serviços (“CBSS”) – controlled by Banco Bradesco S.A. and by Banco do Brasil S.A. – to hold a stake in Stelo S.A.’s capital stock, a whole subsidiary of CBSS operating as a facilitator for online payment and digital wallet, for both the physical world and for eCommerce.

Stelo will be available as of the second half of 2014 to all merchants and consumers, accepting many payment methods, including debit and credit cards and prepaid cards issued in Brazil. Learn more about the service at

With this investment, Cielo aims to consolidate its position in eCommerce, adding Stelo facilitator to its available portfolio to merchants, which also includes the Cielo’s own platform and the Braspag gateway. Furthermore, Cielo will now participate, via Stelo, in the digital wallets business, in which penetration should improve with the increased adoption of smartphones and development of friendlier apps.

The completion of the transaction is subject to execution of definitive documents and approval of applicable regulatory authorities. Cielo will keep the market informed of the development of the operation.