Brazil’s Leading Property Developers Weaker Q1 Results
On the back of comments made by Capital Economics that Brazil’s property market is somewhere in between 30 and 50 percent over valued, the latest figures via Itaú BBA on the performance of the country’s largest real estate developers have also showed generally negative results for quarter one of 2012 (bar Cyrela and Directional) – summarised on the Brazilian Bubble website as follows:
PDG: Earnings Power Still Under Pressure Due to a Low Gross Margin. PDG reported revenues slightly lower than our estimate, but the main negative highlight was the low gross margin (at 27.3%, excluding financial expenses booked in COGS [Cost Of Goods Sold], not very different from the 26.3% posted in 4Q11). The company also revised downward its expectation of units delivered in 2012 to 34-35 thousand (from 35-38 thousand previously) and achieved only 5%-8% in 1Q12.
Cyrela: EPS Beats Our Estimates, Mainly Led by Higher Top Line. The positive results were based on higher revenue recognition (R$ 1.4 billion, versus our R$ 1.3 billion estimate) and a slightly higher-than-expected gross margin (32.7%, versus our expectation of 31.9%, excluding financial expenses booked in COGS). The company had an almost neutral cash burn rate (measured by change in net debt) in the quarter. Overall, we expect a good market reaction to the reported results.
MRV: Disappointing 1Q12 Results; Better-Than-Expected Cash Burn Offset by Lower Margins. Even though we saw a better-than-expected recovery in CEF [Caixa Econômica Federal] regarding the transfer of receivables process and cash burn surprised on the positive side (decelerating QoQ to BRL 111 million), the company posted lower-than-anticipated operating margins, with EBITDA [Earnings Before Interest, Taxes, Depreciation and Amortisation] margin at only 19.0% (versus our 25.6% and compared with the company’s guidance for 2012 of 24%-28%).
Rossi: Lower-than-Expected 1Q12 Results; Numbers Again Affected by Land Sales. Once again Rossi released results affected by land sales. Nevertheless, excluding the effect from land sales in the quarter, numbers came in lower than expected from the top to the bottom line, mainly based on: i) lower revenue recognition; ii) higher-than-expected SG&A [Selling, General and Administrative] expenses; and iii) heavier income taxes.
Tecnisa: Weak 1Q12 Numbers; Still Recovering From Budget Revisions in 4Q11. Tecnisa posted a modest top line, mainly on the back of lower-than-expected revenue recognition combined with heavier SG&A and other expenses, which pushed the bottom line to R$ 11 million in the period. On the positive side, cash burn remained under control, at R$ 91 million, fairly in line with the R$ 83 million attained in 4Q11.
Direcional: In-Line 1Q12 Results. Direcional maintained the positive trend seen over the last few quarters, posting numbers pretty much in line with our estimates for the top line and slightly better at the bottom line based on healthier-than-expected operating margins. Additionally, cash burn remained at low levels, and Direcional reiterated its guidance for reduced cash burn in 2012 against last year.




