Monday, August 3, 2009

Gafisa (GFA) Earnings Weaker than Expected, Does not Matter

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You might be noticing a familiar refrain of late - a lot of things that used to matter simply do not anymore. If the emerging markets/commodities/inverse dollar trade is on - you pretty much are bulletproof buying anything in those groups and laughing to the bank. Earnings reports? Just a useless detail. But we'll continue to humor ourselves thinking its still the 1990s.

I like Brazilian homebuilder Gafisa (GFA) a lot and it has been part of our portfolio for the majority of the past 2 years. But its now beginning to get into the "rich valuation" zone - well over 20x forward estimates for a homebuilder; even assuming Brazil's economy rebounds and the analysts are wrong... it is still a homebuilder. Earnings? Valuations? Phew - old school. As with every stock in Brazil essentially they go with oil and/or China. So despite missing estimates, the hits keep on coming, up another 2%. Most of the growth was on the low end, with the help of ......(wait for it) government.
  • Brazil's second-largest real estate developer Gafisa posted weaker-than-expected profits in the second quarter as it continues to pare back its portfolio of new projects in an effort to reduce its stock of residential properties.
  • Net income rose 35 percent to 57.8 million reais ($31 million) from 42.8 million reais a year earlier, Gafisa reported late on Friday. The company was expected to report profit of 75.4 million reais by analysts.
  • .... sales rose 9 percent to 835 million reais.
  • New projects over the second quarter fell to 626 million reais, down by more than half from the 1.4 billion reais the same quarter a year ago.
  • The company benefited from a boom in sales at its Tenda subsidiary that focuses on low-income housing and saw a 43 percent surge in net revenues and a 33 percent jump in profit in the second quarter.
  • ... expected to benefit from demand for new homes because of President Luiz Inacio Lula da Silva's $18 billion plan to lower financing costs and spur construction of about 1 million new low-income homes.
Silva is loved by "capitalist" investors worldwide even with such "socialist" plans as above ;) Funny how "socialism" is not such a bad word when it benefits the companies you are investing in.... then "capitalists" embrace it. (ahem) You can have your dogma, and eat it too - the labels are just so amusing.

Full report here - guidance below
  • A number of recent government measures, including the R$34 billion package to foster growth in the housing industry, a federal incentive program aimed at building one million houses by 2010 and the Central Bank's recent cutting of the Selic rate to 8.75%, have resulted in increased availability of funds to support growth of the housing industry.

  • Importantly, there are recent signs of strengthened demand for housing in the mid/mid-high segment that is traditionally more sensitive to economic uncertainty. As a result, Gafisa expects launch activity at Tenda to significantly increase in the second half, while it will selectively increase launch activity at Gafisa and Alphaville and continue to focus of inventory and monitor closely the supply and demand for new housing.

  • As announced in 1Q09, Gafisa's consolidated sales for the full year 2009 are expected to be between R$2.7 and R$3.2 billion. Gafisa is expected to account for between R$1.0 - 1.2 billion, Tenda for R$1.4 - R$1.6 billion and Alphaville from R$0.3 - R$0.4 billion. Consolidated EBITDA margin is expected to be in the range of 16% - 17%, while EBITDA margin for Tenda is expected to be between 14% - 16%.

[Mar 30, 2009: Restarting Gafisa as Sam Zell Increases Stake]
[Oct 22, 2008: Sam Zell Increases Stake to Gafisa to 18.7%]
[Aug 17, 2008: Gafisa Earnings]
[Nov 19, 2007: Initiated a Position in Gafisa - Brazilian Homebuilder]

Long Gafisa in fund; no personal position


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