EI Reduces Stake in Gafisa

Equity International, one of the significant shareholders of Brazilian homebuilder, Gafisa S.A. (GFA - Snapshot Report), sold $2.7 million worth of ADRs in the Brazilian market to churn its portfolio. Following the sale, Equity International now owns 5.7% in Gafisa.

Equity International, a privately-held company engages in building companies outside the United States and was the one who led the listing of Gafisa on the NYSE.

Incidentally, Gafisa is the first and the only Brazilian homebuilder company that is listed on NYSE. Equity International also established Gafisa’s brands like Tenda, which serves the affordable housing segment, and Gafisa and Alphaville, which offer residential options to the mid-to-higher-income segments.

These brands have performed reasonably well during the second quarter of fiscal 2010 based on the growth in the Brazilian market. During the quarter, total project launches were 34 in 27 cities worth R$ 1,008 million (US$560 million), representing an increase of 61% year over year. The Gafisa segment contributed 49% of projects launches, Alphaville 22% and Tenda 29%.

On the basis of the increase in projects launches, net operating revenue grew 31% on a yearly basis to reach R$927.4 million (US$515.2 million) from R$705.8 million (US$377.7 million) in the year-ago quarter. EBITDA also increased to R$184 million (US$102.2 million) from R$111.3 million (US$53.3 million) in the second quarter of fiscal 2009, representing a growth of 65.3% year over year. EBITDA margin increased by 400 basis points and reached 19.8%.

Net income increased to R$ 114.1 million (US$63.4 million) with earnings per share of R$0.23 from R$81.1 million (US$38.8 million) or R$0.22 per share during the corresponding period of 2009. Earnings per ADR were 26 cents, below the Zacks Consensus Estimate of 29 cents. 

Based on continuous growth in economic conditions, Gafisa expects launches in the range of R$4 billion to R$5 billion and EBITDA margin within the range of 18.5%-20.5% for fiscal 2010. Thus, our long term recommendation is Neutral. Also, Gafisa currently retains a Zacks #3 Rank (short-term “Hold” rating).

Read the full analyst report on GFA