This is what we like to call a bearish note (from a “uber bullish” bank). Here is what Itau’s David Lawant & Co. wrote on their latest homebuilding report:

“Just as in Samuel Becket’s classic play Waiting for Godot, where two characters wait endlessly (and in vain) for the arrival of someone called Godot, investors in the Brazilian homebuilding space seem to be waiting for a recovery in profitability and returns that may never come. Moreover, quite a few spectators find Becket’s play boring due to the lack of action, choosing to leave before the second act. Similarly, the industry’s long product cycle and complex accounting make visibility dim and any bullish speech frustrating.”

They also seem to be worried about the management of these companies and the shrinkage of the corporate credit market in Brazil:

“… visibility is very low at this point and management credibility is not strong enough to get the market to believe in backlog margins as a proxy for future gross margins.

The corporate credit market (i.e., ex-SFH financing) is not as open as it was a few months ago, with the volume of local bonds issued by homebuilders shrinking 66% in 1H12 relative to 2011 (vs. 16% for the overall market). In this scenario, we reinforce our preference for companies with relatively lower leverage ratios.

We are reducing our overall EPS estimates by 13% in 2012, 3% in 2013 and 4% in 2014… MRV, Even and EZTEC remain our top picks in the sector.”

Source: Itau BBA

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