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Cielo
B3: CIEL3 and OTC NASDAQ: $CIOXY
We were surprised by Cielo’s earnings, which was the 6th beat in a row to market consensus. In addition, Consolidated Net Income reached R$ 184.6mn in 1Q22 (+10% above Street), +35.9% YoY, due to excellent well cost control.
Costs and expenses were down 3.4% YoY. If extraordinary effects that reduced the expenditure base of 1Q21 were isolated, the decrease would have been 8.9%, reflecting:
Nominal decrease in Cielo Brasil's normalized expenses, despite the inflation in the period, pressure on expenses from the substantial volume expansion, and investments in the transformation process;
Expenses are under control in Cateno;
Decrease in Other Subsidiaries expenses due to the sale of Multidisplay/M4U to Bemobi.
The consolidated recurring EBITDA recorded an expansion of 52.1% YoY, reflecting significant Cielo Brasil, Cateno, and excellent cost control growth.
Also, Cielo concluded its divestment agenda from non-core businesses. Although the business turnaround took much longer than expected, we recognize that cost-saving is better than expected.
After the end of the quarter, Cielo announced the closing of MerchantE Solutions sale, a payment company based in the United States.
The company received US$137 million for the deal at the closing date. With the announcement of the sale of MerchantE, the Cielo ends an important divestment cycle, totaling R$ 1.3 billion added to cash from January 2021 to April 2022.
The TPV captured by Cielo Brasil was R$ 198.4 billion in 1Q22, the highest for a 1Q’, growing +23.9% YoY and -4.8% QoQ; despite that, historically, the 4Q seasonality had a more significant impact on the business.
Pre-payment volume totaled R$ 26 billion in volume, strong growth of 31% YoY, due to a 33.4% expansion in credit card TPV (vs. our 16% expectation).
We highlight that Cielo reported a substantial expansion of the acquisition of the receivables line, which reached 9.3%penetration, compared to 6.0% in 4Q21.
Also, the company reported a better card mix, as credit represented 60% of TPV (vs. 59% in 4Q and 56% in 1Q21). Consequently, Cielo is back on track for its operational momentum.
Finally, Cielo started to reprice its client base (mainly in the two-day payment modality) in January due to higher policy rates.
According to the company, card yield reached ~0.76% in the last week of Apr-22, vs. 0.67% in 1Q22. In the retail segment, the yield in the last week of April grew by 28bps vs. the previous week of March.
We’ll keep our expectation for card yield at 0.69% in 2Q22E. For 2022, we forecast TPV growth at +10.5%YoY, card yield at 0.69%, and recurring EPS growth of 6%YoY.
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3R Petroleum
B3: RRRP3
Net revenue reached R$375mn (+183% YoY, in-line w/ us), as increased production and better pricing compensated for lower FX.
We welcome that 3R kept its word, and there was no negative surprise in the Opex. In the 4Q21, 3R paid $30mn in annual bonuses for the executives of the previous acquisitions and $40m transferring corporate costs.
Adjusted EBITDA for the quarter came at R$199mn (+150% YoY). After adjusting for a one-off of R$11mn (goodwill from Areia Branca), adj. Ebitda was R$209mn, a touch above our expectations.
Yet, we believe that 3R is delivering earnings below its potential. Considering the recent acquisitions, the company should expand its operations exponentially and capture a lot of low-hanging fruits, improving its operating margin.
As anticipated, net financial results came negative at R$433mn, with R$81mn as cash effect, with an operating cash flow of R$4mn.
3R had significant recognitions at R$250mn of hedge accounting and R$ 230mn of FX variation, leading to negative results in the bottom line. It was our surprise that a few analysts recognized the hedge as a negative surprise.
As we mentioned in our comment about the 1Q22, for 2022, the company has 2,7mn barrels hedged. They have a hold position in NDFs equivalent to 2mn barrels and Collars (sell call, buy put) for ~600k barrels. The weighted average cap is $65.5/bbl.
Pretty much 31,6% of my estimated production for 2022 if hedged with a $65,5/bbl cap, impacting my Ebitda 22e in ~2%. In the model, we assumed $80/bbl the reach this ~2% output.
On the operation front, the lifting costs decreased 4% sequentially, to US$9.2/boe, driven by the reduction in Macau, which reached US $6.4/boe (-12% QoQ).
We also believe that lifting costs could be reduced, both on increased production and cost management. As a result, we believe 3R will operate more efficiently and execute the overall maintenance and well reactivations to collect the desired synergy.
Finally, we highlight that 3R should keep conquering investors’ trust as it keeps delivering a sequence of incremental quantitative and qualitative value with: i) focusing on organic growth, enjoying low hanging fruit from acquisitions; ii) low overhang risk; iii) arrival of a highly praised member to the BoD, and iv) Potiguar’s certification.