Homebuilders take a wrecking ball to the Bovespa

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.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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