Promising Outlook For Gafisa

Last week, Brazil’s leading diversified national homebuilder Gafisa S.A. (GFA) reported positive financial results for the second quarter of 2009.

The company has been growing fast to emerge as market leader in the construction/incorporation business in Brazil. During the quarter, GFA reported a yearly growth of 54% in net revenue in Brazilian reals. However, the number of project launches fell 56% year over year based on continued focus on sales from inventories. Net income increased 35% year over year and reached R$57.8 million from R$42.8 million in the year-ago quarter. EPS increased to R$0.44 (US$0.42) from R$0.33 last year. However, it was below the Zacks Consensus estimate of US$0.48.

Despite difficult market conditions in the second quarter, Gafisa could post reasonable figures. We do believe the Brazilian real estate business is already recovering based on extensive Government support and lower interest rates. Thus, we foresee better results for Gafisa in the coming quarters. Additionally, the company has a huge backlog of revenue and results, which have to be recognized under the percentage of completion method (PoC). Results of backlog, by the method, were as high as R$1.1 billion (US$526 million), 69% up from the second quarter of 2008.

Gafisa is extremely well positioned in the Brazilian market. The company is a recognized brand and has been growing by acquiring less competitive companies in order to consolidate its lead position in the Brazilian market. Moreover, lower interest rates in Brazil will be a major growth driver for the real estate sector in the short-to-medium-term.

Gafisa’s recent focus has been on providing high quality and affordable housing to lower income segments, which is highly encouraging. We also believe that the company has a distinct competitive advantage by acquiring smaller companies, which will help it to grow even in challenging situations.

Subscribe by RSS Subscribe by Email