Barclays Capital sees merchant acquirers entering consolidation period in Q2

Tuesday, July 19, 2011

Investment bank Barclays Capital sees Brazil's merchant acquiring industry entering a consolidation period in the second quarter, which should result in a continuation of 1Q11 results and indicate a more rational market.

"We see the sector entering into a period of consolidation that helps to dismiss some tail risks in the short run," analysts Henrique Caldeira and Roberto Attuch wrote in a note to investors.

Barclays noted that upcoming results for the country's leading acquirers, Cielo and Redecard, "should be a continuation of 1Q11 results underpinned by stronger card sales during 2Q11, sequential declines in merchant discount rates (MDRs), flattish Ebitda margins and further indications of a more rational market prevailing over the coming quarters."

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Barclays stated its preference for Redecard over Cielo, pointing to faster volume growth at 32% year-on-year in 2Q11, among other factors. The investment bank added that decoupling between the two companies should continue in 2012, against common market wisdom indicating they will post similar growth rates next year.

Cielo - a JV between Banco do Brasil and Bradesco (NYSE: BBD) - is expected to report its 2Q11 results July 26 and Redecard, controlled by Itaú Unibanco (NYSE: ITUB), on July 28. Barclays has a 2-equal weight rating on both companies' stock.