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Ara Avoids Mexican Homebuilder Slump to Gain 20 Percent

March 1 (Bloomberg) -- Consorcio Ara SAB, Mexico’s second-biggest homebuilder by market value, posted its largest weekly gain in three years on speculation it will be able to avoid cash constraints as the government scales back subsidies.

The stock surged 20 percent this week, the biggest jump since May 2009, according to data compiled by Bloomberg. Today the shares rose 4.2 percent to 5.16 pesos at the close of Mexico City trading. Ara’s weekly gain compared with a 6.2 percent gain for the Habita index, which tracks homebuilders in the country.

Last week, the Habita index plunged 12 percent as Fitch Ratings said it may downgrade homebuilders including Desarrolladora Homex SAB and Urbi Desarrollos Urbanos SAB amid concern some properties might be unusable. While the industry as a whole isn’t attractive, Ara is differentiated by its cash flow and solid balance sheet, said Javier Gayol, an analyst with Corporativo GBM SAB in Mexico City.

“If an investor is trying to play Mexican housing, the best way to do so would be by Ara,” Gayol said in a telephone interview. “Its balance sheet remains the strongest in the sample and I think investors are recognizing that.”

Ara reported this week positive free cash flow of $171.7 million pesos in the fourth quarter, according to a company report.

Mexicali-based Urbi Desarrollos Urbanos SAB, by contrast, said this week that cash holdings fell by 58 percent during the fourth quarter to 2.47 billion pesos.

While Ara’s ability to generate cash boosted shares this week, the company isn’t better positioned than other builders in the short term, according to Carlos Hermosillo, an analyst with Grupo Financiero Banorte SAB who rates the stock “hold”.

“I would be hard pressed to recommend this sector right now because of the complications in the short term,” Hermosillo said in a telephone interview from Mexico City. “Most of the players in the industry are guiding toward lower results in the first quarter, and many of them also in the year.”

Ara has gained 25 percent this year, while the Habita index has declined 18 percent.

To contact the reporter on this story: Danielle Verbrigghe in New York at dverbrigghe@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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