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Gafisa S.A. Message Board

  • abcs.learning abcs.learning Mar 1, 2013 1:44 PM Flag

    Gafisa is ramping cash and De-levering Tenda

    The company's early estimate of cash flow generation for 2012 was a range of R$500 to R$700ML. The actual result was R$980ML, 40% above their highest previous estimate.

    The company is taking de-leveraging seriously, and I think this picked up steam with the new CFO, but it was definitely in the company's plan coming in to 2012. The 9/2008 Tenda acquisition had plunged them into the red. They had had 7 consecutive quarters of cash burn and were probably sick of the metrics. But I have seen this before with other builders. When Pulte acquired Centex (a company catering to first-time buyers) in 2009 they eventually had to write-off every penny ($1.6BL) of the purchase and attendant good will.

    There were no new Tenda Launches in 2012. They also gave back 10,000 Tenda units to banks in early 2012, and another 7,000 they flipped and sold to other customers. There is a chart on the Tenda presentation at the December 5th presentation which shows the dramatic drop in Tenda inventory in 2012. I won't say it's down to zero, but my mid-2013 it will be close to that.

    So I would say the company is definitely serious about getting Tenda under control and starting over from scratch with this division, and doing it right from now on. Their Tenda plans for the future can best be summed up in this motto: "Keep it small, keep it under control every step of the way. Don't overbuild. Get paid."

    But all that being said, the need for the Tenda product is profound and growing. The Brazilian Govt - with the World Cup and Olympics staring them in the face - is throwing R$70BL at the problem and would like to give that money to a large residential builder to solve their low-income housing problem. This means two or three large vendors (Like Tenda) building a lot of product for the next 4 years.

    This is the thing I see with GFA - where you see a problem, you see the company addressing that problem aggressively.

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