Gafisa Slowing Brazil Buildout

Gafisa S.A. (GFA) is one of the largest builders and incorporators of Brazil. We are reiterating our Hold recommendation on the company.

Third quarter 2008 results were positive. We expect reasonable results for the medium-to-long term based on the announcement made by Caixa Economica Federal, a state-owned savings bank. The bank expects to increase credit and buy stocks in the construction sector to help the industry make it through the crisis. Moreover, the recent joint venture with Tenda will enhance the company’s presence in the low income segment, which is also an asset for the company.

However, construction is a cyclical business, and we foresee less availability of credit in the short term. All considered, we decided to maintain our Hold rating on Gafisa S.A., with a target price of US$9.75, representing a valuation of approx 5.5x our 2008 P/E, almost in line with the industry median.

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