A “Cold War” type of relationship between Brazil’s top-two market structure companies as well as mergers and acquisitions activity and regulatory and competition noise in the merchant acquiring sector will likely mark the year for shares in Brazilian non-bank financial companies, analysts at BTG Pactual Group led by Marcelo Henriques said in a Thursday note. Exchange operator BMFBovespa SA and clearinghouse Cetip SA Mercados Organizados will likely get entangled in a price war amid declining profitability and pressure to contain costs. Rumors that BM&FBovespa, which is BTG Pactual’s top stock pick in the sector, could buy Cetip have again arisen, Henriques noted.
Regulatory noise and competition may also weigh on performance of card payment processor Cielo SA’s shares. Henriques added that BTG Pactual “likes” insurance brokers and maintained his recommendation to buy shares of Brasil Insurance SA because of its “no-frills business model of zero underwriting risks, high margins, cash flow generation and dividend payouts.”