UPDATE 1-Brazil's Cetip misses profit forecast as expenses jump

Thu Nov 8, 2012 5:09pm EST

* Net income of 63.1 mln reais misses forecast

* Expenses grow faster than revenue in quarter

* EBITDA margin falls on outsourcing expenses

SAO PAULO, Nov 8 (Reuters) - Profit at Cetip SA Mercados Organizados, Latin America's largest securities clearinghouse, fell for the second straight quarter after expenses outgrew revenue amid a rough period for the nation's bond and credit markets.

São Paulo-based Cetip reported third-quarter net income of 63.1 million reais ($31 million), down 0.7 percent from the prior three months, according to a securities filing on Thursday. Profit fell short of analysts' estimates of 64.1 million reais in a Reuters poll.

Sales, general and administrative expenses jumped 12.3 percent on a sequential basis, driven by a rise in the cost of outsourced services. Cetip and BM&FBovespa SA, the country's largest bourse, which for several quarters beat earnings estimates thanks to stringent cost controls, are suffering from rising prices for services in Latin America's largest economy.

Expenses totaled 80.9 million reais in the three months through Sept. 30, the highest level since the fourth quarter of 2010. Headcount rose by about 10 percent over the past year as Cetip implemented its over-the-counter derivatives central counterparty and a trading platform for local corporate notes.

Net revenue rose 3.5 percent to 200.9 million reais, more than forecast in the poll, after income from custody and registration of securities climbed 3.6 percent. Yet flagging demand for automobile loans weighed on Cetip's income from the sale of liens on auto loans - which grew 5.1 percent sequentially thanks to more resilient pricing in that segment.

Still, in the custody and registration segment, pricing conditions continued to deteriorate, although at a less-rapid pace. Average prices for registration of fixed income securities rose by 1 cent to 0.11 reais, compared with a 2 cent decline in fees charged for derivatives to an average of 0.05 reais. Custody fees remained stable at 0.07 reais in the quarter.

Average daily volumes for registration of auto liens fell for the fourth straight quarter. Sales deductions kept rising, in a bearish signal that the company is charging clients less on services as demand for financial securities remains stagnant in Brazil.

Banks in Brazil are scaling down vehicle financing this year after defaults in the segment hit a record high. Cetip's financing unit depends heavily on loans in the segment because it registers them and sells specific, customized data on their value to banks.

Cetip's earnings before interest, tax, depreciation and amortization, a measure of operational profitability, rose 1.4 percent from the prior quarter to 144.2 million reais - slightly below the 142.7 million reais estimate in the poll. EBITDA, as the indicator is known, rose 1.1 percent from the same period a year earlier.

EBITDA fell to 71.8 percent of net revenue in the third quarter, from a so-called EBITDA margin of 73.5 percent in the second quarter.

Management is scheduled to discuss third-quarter results on a conference call on Friday.

Cetip shares were up 2.7 percent at 24.15 reais on Thursday.

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