Substitute for the Minha Casa Minha Vida program, Casa Verde Amarela, aimed at the population with lower purchasing power, has been skating within the results of the MRV (MRVE3), which is one of the largest players in this niche of civil construction.
According to Rafael Menin, CEO of MRV, the company had “a result far below the historical performance” in the Casa Verde e Amarela program, which was once almost 100% of the developer’s operation, and currently represents about “50% of the business”.
“The segment has been delivering margins far below historical ones,” he said, during a conference call with analysts this Friday (13) to comment on MRV’s first quarter results, which added up to a profit of R$71 million, a figure of 47.8%. below that recorded a year earlier.
The company’s shares soared 5.56% after the release of the results, with the shares quoted at R$ 10.24%, in the early afternoon.
In the conference call, the company said that the AHS business, in the USA, could reach a valuation of up to US$ 2 billion.
For Credit Suisse, the information was positive, and could increase the book value of MRV, which would compress the P/BV [Price to Book Value] and would make your review more attractive – currently at ~0.8x.
Green and Yellow House ‘withered away’
Regarding the Casa Verde e Amarela program, Rafael Menin took advantage of the conference call to criticize it, stressing that it needs a correction by the government. The same appointment occurred the day before by the Tent.
“Casa Verde e Amarela has ‘withered away’ in the last 3 quarters. It was a roughly 30,000-unit-per-month program, and it turned into a 15,000-unit-per-month program,” he said.
According to the president, MRV still expects to grow with the lack of supply in the popular housing segment. “This will be possible since most companies in the segment stopped operating in this sector, which is very bad for the country.”
And he added: “We expect an eventual correction in the program’s rule in the coming months. These two moves bring good security for MRV to deliver this new sales margin around 30%,” he said.
Menin said that the players that remain in the Casa Verde and Amarela segment of the program also increased their unit sales prices.
“The lower-income population is becoming unable to buy. The average income of our client has gone up because of this”, he pointed out. “Inflation has eroded the purchasing power of low-income people,” he added.
The executive also commented that the sector has had conversations with the government about the future of the housing program and the tendency is for something to be done in the short term, with a possible change in the subsidy curve, an increase in subsidies and interest rates.
MRV reported that delinquencies worsened in the program and that on-time payments fell, albeit marginally.
The company also clarified that it does not intend to launch products in the segment with low gross margin from now on.
Impacts of inflation on MRV
As a whole, the executive highlighted that MRV had a very strong commercial performance in 2020, and, in the following year, it also achieved a good result. However, now, he stressed that the high costs had an impact.
“When we make the sale, we transfer it almost simultaneously. As a result, the price is no longer updated. We were surprised by massive inflation, not only in Brazil, but globally,” she said.
“This made the results, especially the 2020 and 2021 deliveries, have a tragic performance, in relation to the margin”, commented the president.
According to him, the company has been observing a reduction in margins, “quarter by quarter”. “Now it arrives in 2022 with a gross margin below 20%, which is a margin well below historical standards. It is the historic minimum of margin”, he pointed out.
Rafael Menin also said that he expects, from now on, that the inflation forecast by the company is capturing possible future costs. “Our expectation is to have a gross margin compressed in the coming quarters, but rising”, he added.
This Friday, MRV reported that the inflationary projections of 4.5% per year, considered in previous budgets, are “insufficient”.
Thus, the company updated the INCC (National Construction Cost Index) projections in its budgets to 7%, resulting in the compression of the gross margin in the quarter, which reached the mark of 19.8% in 1Q22.
According to MRV, events such as the Russia-Ukraine conflict and the intensification of energy and commodity inflation were decisive for the change in projections.
More balance sheet analysis
In a report, Bradesco BBI highlighted, among the balance sheet numbers, a new sequential decrease in the margin.
Analysts pointed out that MRV Brasil’s gross margin of 19.4% is still hampered by rampant costs.
In addition, the result of the Brazilian core business unit was R$ 26 million and represented only 31% of the consolidated result of MRV&Co.
BBI maintains ranking outperform for MRV and target price of R$ 21.00.
Credit Suisse followed suit, reinforcing that the company has had margins pressured by budget revisions,
The bank’s research team comments that MRV reported slightly weak results, printing a more significant compression in its gross margin and a less expressive result (11% below the consensus).
Although Credit has a positive view of the company’s portfolio diversification strategy, the bank says it is wary of the downward trend in the bank’s margins. core business and how long it would take for a potential payback.
The bank maintains a neutral rating for the paper, and a target price of BRL 15.
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