Tecnisa SA (TCSA3) is winning over analysts faster than any other Brazilian homebuilder as sales rebound after the company focused on higher-income buyers and pulled out of poorer regions.
The stock’s consensus rating, based on a scale of one to five, rose to 3.83 yesterday from 3.36 three months ago for the biggest jump among the BM&FBovespa Real Estate index’s 20 members, according to data compiled by Bloomberg. Second-quarter sales rose 34 percent to 500.7 million reais ($217.8 million), topping analysts’ revenue estimates for the first time since 2010, the data show.
Tecnisa, the real estate gauge’s best performer this year, is joining Cyrela Brazil Realty SA and EZ Tec Empreendimentos & Participacoes SA in focusing on more expensive projects. Some homebuilders are backpedaling from lower-income homes after overestimating the profitability of government-subsidized projects aimed at building 3 million houses for families earning less than 5,000 reais a month.
“Brazilian homebuilders have matured,” Wesley Bernabe, an analyst at Banco do Brasil SA (BBAS3) who plans to review his hold rating on Tecnisa by the end of earnings season on August 14, said in a telephone interview from Sao Paulo. “The strategy to focus on more liquid markets and higher-income consumers, where demand is more resilient, is the best for homebuilders at this moment.”
Sao Paulo-based Tecnisa, the first Brazilian homebuilder to release full second-quarter earnings, has gained 16 percent this year, compared with a 22 percent drop for the Ibovespa (IBOV) stock benchmark. Industry leaders Cyrela and EZ Tec, which posted preliminary sales gains of at least 66 percent and are set to release full results next week, posted an 11 percent drop and 4.4 percent gain, respectively.
Homebuilders in Brazil are showing signs of improvement as their biggest counterparts in Mexico restructure operations and debt after policy makers shifted government incentives to encourage urban development instead of suburban homes.
“In both places, the excessive pace of growth caused companies to lose control of their operations,” Andres Calderon, a portfolio manager who helps oversee $6.2 billion in assets at Hansberger Global Investors, said by phone from Fort Lauderdale, Florida. Second-quarter figures released so far show Brazilian homebuilders are “starting on the right path,” he said.
While some Brazilian homebuilders are beginning to show improvement in sales and profit, faster inflation and rising borrowing costs may hinder the rebound, said Joel Wells, the emerging markets real estate fund manager at Purchase, New York-based Alpine Woods Capital Investors. His firm manages $5.5 billion in assets.
Annual inflation quickened to 6.7 percent in June, the highest since October 2011 and above the central bank’s target range. The central bank raised the target lending rate by a half-percentage point on July 10 to 8.50 percent, the third straight increase this year. Policy makers are expected to further boost the rate to 9.25 percent by year-end, according to the median forecast in a central bank survey published Aug. 5.
“I’m not willing to give the turnaround stories credit right now,” Wells said by telephone. “There will still be headwinds to the group as the economy continues to work through the problems it’s having, and the weaker developers won’t be able to compete as well.”
Of 12 analysts that rate Tecnisa, seven say buy, three say hold and two say sell, according to data compiled by Bloomberg. Chief Financial Officer Vasco De Freitas Barcellos Neto said he expects ratings to rise further.
Tecnisa “has learned from its mistakes,” Barcellos said in an Aug. 2 interview at Bloomberg’s Sao Paulo office. “It has everything it needs to satisfy the market and improve the stock price.”
Meanwhile, Sao Paulo-based EZ Tec (EZTC3)’s decision to maintain its focus in the metropolitan region of Sao Paulo gave it an advantage as competitors expanded to other areas, said CFO Emilio Fugazza.
“We always believed that a company should be its right size,” Fugazza said by phone from Sao Paulo. “We stuck to our plan and that’s what our results show.”
Cyrela’s press office in Sao Paulo, where the company is based, declined to comment.
“The strategy in Brazil was to grow, and they were growing in regions, income segments they didn’t know well,” Esteban Polidura, an analyst at Deutsche Bank AG, said by phone from Mexico City. “Today, operations for most homebuilders are healthier, but smaller.”
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