Barclays Capital upgrades Cetip to 1-overweight

Thursday, August 25, 2011

Barclays Capital has upgraded its rating on Brazilian securities clearinghouse Cetip to 1-overweight from 2-equal weight, the firm said in a note to investors.

Barclays said that despite its exposure to more volatile vehicle financing, "Cetip still offers a higher degree of stability coming from a base of recurring revenues that are less exposed to the cyclicality of risk aversion and market-related risks."

Barclays added that this stronger earnings resilience versus traditional exchange operators becomes more evident "through the steady growth rates on the outstanding financial stock registered at Cetip, which have expanded at a 22% [compound annual growth rate] since 2005."

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Cetip boosted 2Q11 net revenue by 47.2% year-on-year to 185mn reais (US$115mn) on strong growth from contract registration and custody lines, as well from the acquisition of GRV Solutions last year, which processes and holds custody information regarding car financing.

"We think 2Q11 was a positive trigger for shares to move higher after posting better-than-expected growth rates in 1H11," analysts Henrique Caldeira and Roberto Attuch wrote.

The analysts added that the 12.4% stake in Cetip acquired by Intercontinental Exchange (NYSE: ICE) last month "was a strong signal from ICE selecting Cetip as a strategic equity investment, [and] we see important effects, as ICE's extensive market expertise and trading technology could help Cetip to customize and introduce new products."