Another bad year for the Brazilian market rolls on with the Bovespa slithering down to test 55,000, a scenario made worse for foreign investors by the disappearing real which continues its long journey into the night against the US dollar and even the pulped Euro. The culprits for the market’s poor showing are numerous – indeed, a full 32 of the 61 companies in the Bovespa that have reported quarterly earnings missed estimates – but homebuilders come close to top of the we-screwed-up list.
Their weak performance seems surprising at first blink as interest rates have careened down to 9% and look likely to fall further, producing an excellent backdrop for the sector. Nevertheless, giants including PDG, Gafisa and Rossi have all done poorly.
Let’s take a quick look at Gafisa. It presented losses of $16.3m in the first quarter when it announced that it was refocusing on its core markets of São Paulo and Rio de Janeiro and reconfiguring its low income unit (which it bought only in 2008), Tenda.
This runs counter to its focus of recent years when diversification was the mantra and smaller, far-flung cities the destination. That Gafisa is having to pull back at Tenda, once billed as their entrance into the filet mignon of low income housing, shows just how wrong things have gone.
There’s an interesting article by Ruban Selvanayagam on how Gafisa messed up and mismanaged its low income unit with a combination of too much volume and too little buyer analysis http://www.habitationfortheplanet.org/blog/2012/01/brazil-affordable-housing-tenda/.
Now, these decimated companies look very cheap and Sam Zell, who held a stake and then wisely sold it, is sniffing around Gafisa again for a piece of the action.