New card acquirer seen entering market as niche player

Wednesday, June 29, 2011

A new card acquirer - a JV between Petrobras' (NYSE: PBR) subsidiary BR Distribuidora, logistics service provider CFT Technologies and lender Banco Fator - is reportedly about to enter Brazil's card industry as a niche player in the fuel distribution segment.

Local news agency Agência Estado reported that the three companies are in the process of creating the JV. HP (NYSE: HPQ) and First Data will be in charge of the transaction processing.

In a research note, Swiss investment bank UBS (NYSE: UBS) said that "although it may seem as if the fuel industry is highly fragmented among several small gas station owners, we highlight that the industry may carry a risk to acquirers given their concentration at the distribution level. We estimate this industry to be responsible for some 8% of the acquirer's revenues and to be under new risk."

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UBS's Alcir Freitas noted that BR Distribuidora is responsible for a some 40% market share of the local fuel industry, but that despite its more than 60bn reais (US$38.2bn) in revenues last year, the Petrobras subsidiary delivered a modest 3% Ebitda margin.

"The combination of this industry's low margins with thick 1.3% net merchant discount rates (MDRs) at the acquirer level may in our view create an appealing landscape for fuel distributors to enter," Freitas wrote.