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Cielo (CIEL3): UBS BB downgrades recommendation and cuts stock price target

Cielo (CIEL3): UBS BB downgrades recommendation and cuts stock price target





UBS BB has revised its recommendation for the company’s shares downwards Sky (CIEL3) Buy to Neutral. Additionally, the stock target price has been adjusted from R$6 to R$5.75 by the end of this year. According to BB analysts at UBS, the decision was taken in line with the progress of the public takeover offer (OPA) of Bradesco (BBDC4) and Banco do Brasil (BBAS3).

Strategists also say that the new target price for Cielo reflects the last value offered, of R$5.60, adjusted by the CDI (Interbank Certificates of Deposit) for the period until the conclusion of the offer. The new estimates and discounted cash flow (DCF) model, they say, also support the new price target.

For UBS BB, change to Heaven esteem were driven by lower-than-expected volumes, especially in the first quarter, and reflect the loss of market share. Furthermore, the effects of interest rates higher rates (Selic consensus now at 10% in 2024 and 9% in 2025) have been negative for the company’s financial results.

As a result, Cielo’s earnings projections have been reduced by 1% for the period 2024 to 2028.

Financial experts calculate that Cielo is now valued at R$15.6 billion, with a price-to-earnings (PE) multiple of 8.4x, for the year 2024 (24E), using estimated earnings per share. This means that the current price of shares of Sky equivalent to approximately 8.4 times the company’s expected earnings per share.

Cielo (CIEL3) earns R$503m in 1Q24 balance sheet, up 14%

On April 25th the Cielo mechanical company(CIEL3) reported a net profit of R$503.1 million for the first quarter of this year (1Q24). The figure represents an increase of 4.6% compared to the previous quarter (4Q23) and 14.1% compared to the same period last year (1Q23). The company says this is the company’s best performance since the first quarter of 2019.

The significant improvement in the financial result, the optimization of expenses to reduce the costs of the services provided and the greater tax efficiency boosted profits, as stated by the company itself. Sky in the 1Q24 balance sheet communicated to the market. However, this result was partly offset by the reduction in volume and higher expenses related to the transformation program, the company explained.

Net operating revenues amounted to R$2.563 billion, recording a decrease of 7.5% compared to the previous quarter and 0.3% compared to the same period of the previous year. In the meantime Brazilian sky an annual decrease of 3.4% was recorded, in Cateno there was an increase of 4.8%.

Cielo’s recurring earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to R$746.7 million, representing a reduction of 24.9% compared to the same period last year. This decline is primarily associated with expenses related to advancing the company’s transformation program and expanding its commercial strength. On the other hand, Cielo’s adjusted Ebitda margin reached 29.1% in the first quarter of 2024, showing an annual decline of 9.6 percentage points.

Cielo’s cash balance drops by R$1.090 billion

Regarding the financial position, as of March 31, 2024, Cielo presented a cash and cash equivalents balance of R$1,260 billion. This represents a decrease of R$1.090 billion compared to March 31, 2023 and a reduction of R$173.9 million compared to December 31, 2023.

The company says it has closed the Cielo neighborhood with 822 thousand active customers (with transactions in the last 90 days), which represents a reduction of 5.5% compared to the previous quarter and 19% compared to the first three months of the previous year. Cielo says this reduction is primarily attributable to the behavior of smaller customer segments.

The take rate (fee charged on each transaction) was 0.76%, compared to 0.74% in the fourth quarter of 2023 and 0.78% in the first quarter of last year.

As regards fixed-term products, solutions that allow customers to anticipate the flows of their credits, Sky recorded a volume of R$24.61 billion, representing a quarterly decline of 26.9% and an annual decline of 23.5%.

Source: Terra

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