São Paulo – a path of growth potential. This perspective that opened up for C&A (CEAB3(Following the news, albeit expected, that the retailer has terminated its financial services joint venture with Bradesco)BBDC4). Following the news, CEAB3 shares rose, with a 7.7% jump, to R$7.83.
Through a physical fact, the C&A has indicated that it will invest R$415 million to buy back the right, which was exclusive to Bradesco. As a result, C&A will launch its own payment solution in December, C&A Pay.
As BBI points out, the company’s management had already commented on the release of its second-quarter 2021 earnings that it was confident this “problem” would be resolved by the end of the year. The joint venture has been around since 2009, when Bradesco acquired Banco Ibi, the financial services arm of C&A, for R$1.4 billion.
However, C&A made it clear during the IPO that it needed to renegotiate or exit the partnership, citing a lower level of sales (about 20% in 2019, now down to nearly 15%) using its credit product compared to its competitors (lower). of 40% of sales using their credit solutions). “This effectively reduced C&A sales,” the BBI notes.
Thus, the termination of the partnership solves a long-standing problem and also highlights one of the key growth factors introduced during the IPO.
“So we should expect to see private credit solutions with greater C&A sales penetration, with management targeting comparable levels to peers within 3-5 years,” the analysts assess.
They point out that it is difficult to estimate exactly how much this will affect a retailer’s income statement in the coming years, as it will depend on 1) how many people signed up for a credit solution, 2) how many of those people didn’t shop at C&A because they didn’t have access to credit (that is, how much this will be an increase in sales); and 3) expenses and provisions.
For analysts, the priority is to accelerate growth in the retail business, rather than making a huge profit from operating financial services. They note that one of the C&A assets it will use to accelerate growth is the C&A and VC loyalty program, which currently has 18 million registered customers, about half of whom have pre-approved credit lines.
“We believe that the start of operations will likely be faster than we anticipated when C&A announced in August that it would likely reach an agreement with Bradesco by the end of the year, but the absolute level of acceptance and the extent of that fast-growing go remains uncertain,” they note. Initial analyst calculations suggest that a 10-20% revenue increase through 2024 and small financial services profits from year three onwards will be enough to cover the price paid to Bradesco.
They assess that risks are common to all credit operations – specifically credit risk and this is an area where C&A has less experience than its competitors. Overall, BBI sees the news as positive for C&A, but does not change the neutral recommendation or target price at R$10, or a potential 38% increase from yesterday’s close.
XP also saw the news as positive, but maintained the newspaper’s neutral recommendation, with a target price of R$8.50 per share, or a potential 17% increase over the last close.
“While we saw the announcement as positive and believe it should unlock value in the medium term, we remain neutral as we expect a challenging moment of results in the short term given the challenging macroeconomic scenario, while initially we should see investments only in This process is reflected in the results and the benefits should be reaped further,” point out Daniela Egger, Gustavo Sendai and Thiago Suedt, XP analysts, in Report.
Analysts rate the ad as strategically positive in that they view the offering of property credit as a competitive differentiating factor for retailers, especially with a lower-income target audience. Additionally, you estimate that a trade can unlock a lot of value as its volume increases.
“While we welcome the company’s initiative to develop the financial services arm, we believe the benefits should take time to reflect in the company’s results, given that (1) the company must first invest in team building and the platform to support the process; (2) we expect them to be conservative in the short term , given that they are still at the very beginning of the credit award process in a difficult macro scenario; and (iii) consumer migration should be gradual as they become familiar with the new service.However, we note that the fact that C&A Pay is built into the corporate loyalty program (C&A & VC), which has about 18 million users, should help,” they point out.
They believe it is necessary for the company to adopt a conservative stance at the beginning of the operation, since recent data on the consumer profile may have been distorted by emergency aid, while the short-term economic outlook remains difficult.
In addition, the company will not be able to access Bradesco’s customer base data due to confidentiality laws (LGPD), while the C&A & VC program is very recent (about 3 years old), therefore, customer data is also subject to distortions resulting from the pandemic. “Finally, we emphasize that the financial services business is not easy to operate, which brings implementation risks into the history of the company,” they assess.
The other institution that evaluated the news as positive, but did not change its outlook for the stock, is Morgan Stanley, which continues to have an even valuation (exposure in line with the market average), also with a target price of R$10.
Morgan emphasized that the agreement will open up a lever for growth, as it sees in the process an opportunity for C&A to boost sales and gain loyalty through a financial services offering.
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