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MRV Initiation
1. MRV Engenharia (MRVE3)
Sector: Real Estate & Construction
Target Price: R$44.00 / US$23.61 (as of September 19th)
Current Price: R$28,99 / US$15.55 (as of September 19th)
Upside: 51.8% / 35.3%
Initiation of Coverage September 21, 2007
The Real Low Income Player BUY
We are initiating coverage of MRV Engenharia shares with a Table 1
December 2008 price target of R$44.00 per share, implying a 52% Market Cap in R$MM 3,786
upside in R$ terms (35% in US$) and a BUY rating. Firm Value in R$MM 3,205
52-week Hi-Lo in R$ 32.5 26.0
30D ADTV – R$000 11.500
MRV shares currently trade at 9.1x PER09E and 7.2x
• Share Price: 28.6
FV/EBITDA09E vs. respective sector averages of 10.1x and Variation 1M 3M 6M
7.3x. In our view, MRV should trade at premium to its peers, given Absolute -5.8% N.A. N.A.
its superior growth prospects, which are supported by its Relative -14.9% N.A. N.A.
positioning and by the current macroeconomic scenario. Adjusting Volatility 1M 3M 6M
multiples to growth, MRV trades at 0.08x PEG08E and 0.08x Absolute 46.7% N.A. N.A.
FV/EBITDA08E-to-growth, while peers trade at 0.22x and 0.15x Relative 11.1% N.A. N.A.
respectively.
Table 2 – R$MM 2006 2007E 2008E
Net Revenue 140 390 942
An integrated developer focused in affordable housing,
• Adj. EBITDA 22 82 243
MRV’s story dates back to 1979 when it started to operate in Net Profit 17 29 249
Belo Horizonte. Since 1995, the company has been going through Dividends 0.0 0.6 7.2
an ambitious expansion plan. It is now operating in 35 Brazilian FCFF (52) (316) (246)
cities within 8 of the richest states in the country. ROIC (%) 13.5% 6.9% 16.8%
Table 3 2006 2007E 2008E
MRV’s strategy is coherent with its ambition to be perceived
• PER 211.1 125.2 14.4
as the main player in Brazil’s affordable housing segment. FV/EBITDA 162.1 146.1 14.4
The average unit prices of R$100,000 are lower than the FV/FCFF N.R. N.R. N.R.
competition’s. The current R$4.3 billion land bank is distributed Dividend Yield 0.0% 0,02% 0,20%
through 35 cities in areas where demand for affordable housing is FCFE Yield 0.0% N.R. N.R.
strong. Units are standardized, which allows for productivity gains Net Debt to EBITDA 2.47 -28.16 -0.35
and lower construction costs.
Table 4
PEG Ratio 0.08x
With the exception of 2007 and 2008 ramp-up, we have
• EBITDA Multi/Growth 0.08x
conservatively assumed that, due to its positioning in the PBV** 3.13x
low income segment, the company should be able to grow Net Debt/Equity N.R.
slightly above the other companies in our coverage universe. Net Deb/ Total Cap N.R.
A shorter construction cycle should also accelerate revenue *N.R. – Not Representative
**PBV adjusted for IPO
recognition vis-à-vis its peers, besides diminishing the PoC
accounting distortions.
Share Price vs Ibovespa Performance
As for the risk to investment case, most of it lies on the
• 150
macroeconomic scenario. Any major downturn in the Brazilian
economy, especially if the interest rates easing process is affected, 125
should have more impact on MRV than on other more diversified
players. 100
75
Another risk, in the longer run, is competition coming from
•
players like Cyrela, Rossi and Gafisa, which have already 50
20/07
27/07
03/08
10/08
17/08
24/08
31/08
07/09
14/09
disclosed plans to tap the low income segment. Nonetheless,
while these players prepare to and gain scale in the segment, MRV
has a realistic chance of growing by taking market share from a MRVE3 Ibovespa
large number of small and local competitors with limited access to
capital.
Rafael C. de Pinho
55 11 3089-8748
rpinho@bulltick.com
See appendix A for Important Disclosures
This report has been prepared by Bulltick Brasil Consultoria e Assessoria Empresarial Ltda. which is not an NASD member, it’s not registered under the
US Securities and exchange commission, and it’s not regulated by any US Securities or commodities exchange. Non-US research analysts who have
prepared this report are not registered/ qualified as research analysts with the NASD or any other US securities exchange or regulatory body
2. Investment Thesis: Three Reasons Why we Like MRV
1 – MRV is well positioned to profit from the Brazilian housing boom.
Among Brazil’s listed real estate companies, MRV is the only one who can claim full
Positioning: Fully exposed
exposure to lower income segments. Some of the major players in the sector recently
to lower income segments.
disclosed their strategies to tap lower income segments which will include: (i) shift land
banks from now on to more affordable housing projects; (ii) redesign products and
brands and (iii) launch a higher percentage of affordable segment projects as a
percentage of the launchings pipeline going forward.
However, 20% to 25% exposure to the segment in terms of future launchings does not
look enough. Investors willing to play the low income segment in Brazil have MRV as an
option that presents proven and sound track record and a solid brand, widely recognized
as being 100% focused in the affordable housing segment.
Below we present the recent evolution of launchings in terms of average price per unit
Recent launchings track
launched by some developers. It is important to note MRV is way ahead of competition in
record: consistent with
terms of product positioning in the lower income segments.
positioning.
Exhibit 1: Average price/unit launched – in R$ thousands
600
500
400
300
200
100
-
Company Cyrela Gafisa Klabin Rossi Tecnisa MRV Rodobens
Segall
2005 2006 1H07
Source: Companies and Bulltick
The first requisite to launch low income developments, as for any development, is to have
the land bank in the right place. We present below MRV’s land bank as of 2Q07.
Exhibit 2: MRV’s Land Bank and Average Unit Prices
State PSV (R$ MM) % Potential Units Avg Price (R$/Unit)
SP 2,619 60.4% 24,924 105,099
MG 779 18.0% 9,588 81,271
RJ 235 5.4% 2,960 79,364
DF 210 4.8% 1,542 136,267
ES 179 4.1% 1,912 93,778
GO 172 4.0% 1,734 99,250
PR 122 2.8% 1,324 91,993
SC 17 0.4% 181 95,647
4,334 100% 44,165 98,138
Source: MRV
It is interesting to note that not only past launchings show MRV consistent positioning in
Land bank’s average unit
the segment, but also does the profile of its R$4.3 billion PSV land bank going forward.
price: R$98,138.
Besides being diversified in 36 cities within 8 of the richest states in Brazil, unit sales
prices are on average R$98,138.
The cities where MRV’s land bank is located and the strategy behind their choice are also
MRV’s current competition
worth mentioning. MRV targets cities with at least 200,000 inhabitants, where it will
is formed by small players…
normally find enough demand for its developments. Besides having demand in place, this
kind of city presents an advantage: lack of competition. As the major players are
2
3. traditionally more active in state capitals, in most of the cases MRV ends up competing in
most of the cases against small local players, which lack the capital and structure to be
fierce opponents.
Exhibit 3: Geographic Positioning – MRV
GOIÁS
Brasília
MINAS GERAIS
Goiânia
BRAZIL
Belo Horizonte
Uberaba
Uberlândia
Contagem
Nova Lima
ESPÍRITO
SANTO
Serra
RIO DE JANEIRO
PARANÁ
Rio de Janeiro
Curitiba
Londrina
Maringá
SÃO PAULO
São Paulo Campinas
SANTA São Bernardo Sta. Bárbara do Oeste
S.J. Campos Piracicaba
CATARINA
Santo André Americana
Mauá Paulínia
Taubaté Marília
Joinville
Cotia Bauru
Sorocaba Araraquara
Mogi das Cruzes São Carlos
Jundiaí Ribeirão Preto
S.J. Rio Preto Franca
Source: MRV
Last but not least, we shall examine MRV’s product strategy. Building affordable housing
Key to profitability in low
is something that demands a change in the way traditional companies look at the
income housing:
standardization. development process. Instead of tailor-made projects, standardization comes in play as a
key to a successful and profitable operation. Exhibit 5 shows our view of different product
levels and the corresponding price sensitivity at each level.
Exhibit 4: Real Estate Product Levels
Source: Bulltick
MRV positioned itself as a leader in the low income segment by understanding clients’
Standardization: 3 basic
demand for monthly installments to fit their income. Standardization was the answer to
products replicated
decrease unit prices. The company designed 3 basic types of projects that are used
everywhere…
depending on the local demand.
3
4. On top of minimizing design costs other companies face on a per-project basis, the
… resulting in low design
costs and allowing for gains approval process tends to be faster as the standardized project becomes known of the
of scale. authorities. Additionally, raw material purchases can be concentrated on fewer suppliers
and executed by the company’s headquarters in a centralized manner, allowing for gains
of scale. Exhibit 6 depicts the three basic product types designed by MRV.
Exhibit 5: MRV’s Product Types
Village
100-220
Two parking spaces;
Two to four bedrooms
with suite.
Spazio
Unit Price (R$ thousands)
70-140
One parking space; Two to
three bedrooms, suite
option; Balcony.
Parque
One parking space; Two
77
to three bedrooms, no
suite option.
40-55 42-70 70-120
Apartment Area (m2)
Source: MRV and Bulltick
4
5. 2 – MRV is sticking to the right strategy
Besides being uniquely positioned, the company has a solid brand name in a segment
MRV has no reason to
where most of the big names either lack one or are still in the making. Additionally, the
change. On the contrary,
competition will have to capital investment made earlier this year by Autonomy Capital allowed the company to
change. accelerate its already fast-paced growth plans and expand its land bank. The latest boost
to the company’s growth plans came after the roughly R$1 billion in equity issued.
Growth way before the IPO. Differently from many real estate companies, MRV has been paving its growth long before
its IPO. Not only has the company been growing operationally, but also geographically.
MRV’s geographical expansion which started in 1995 and since then reached 35 cities,
followed a logical path, using regional offices as operational hubs from where it expanded
to surrounding cities. The results of such strategy can be seen on exhibit 7, a 61% and
43% CAGR in the PSV of launchings and in contracted sales, respectively, in the 2004-
2006 period.
Exhibit 6: Operational Highlights
2004 2005 2006 1H07 CAGR '04-'06
Launchings
Launching PSV - MRV Stake - (R$ MM) 130 184 337 433 61%
Average Price per Unit Launched - (R$) 80,477 104,166 112,935 96,910
2
Launched Usable Area (m ) 101,434 133,294 229,331 286,595
Number of developments launched 28 45 67 61
Number of units launched 1,618 1,769 2,987 4,463 36%
2
Average Price (R$/m ) 1,312 1,421 1,512 1,723
Sales
Contracted Sales - MRV Stake - (R$ MM) 100 110 206 276 43%
Average Price per Unit Sold - (R$) 66,611 81,038 99,201 103,869
2
Usable area sold (m ) 88,703 90,043 148,953 181,799
Number of units sold 1,506 1,361 2,079 2,658 17%
2
Average Price (R$/m ) 1,148 1,245 1,430 1,627
Source: MRV
Despite the accelerated expansion observed in recent years, MRV has ambitious growth
“MRV 40,000”: strategic
moves and debottlenecking plans for the coming years: recently it has disclosed the “MRV 40,000” initiative,
to boost production. consisting of a plan to enable the company to deliver 40,000 units a year. In order to do
that, MRV started by defining production objectives for each team in the company in
terms of production. In order to reach those objectives, the company’s processes and
production bottlenecks were mapped so that the teams could start working on solving
them.
Additionally, such an ambitious plan would not be possible without heavy technological
support. MRV has ERP software running to manage its different construction sites and is
taking steps to make its systems capable of handling the desired volumes.
Regarding measures of the plan already taken, the regional offices administrative
routines and all the purchasing structures are now centralized as much as possible in Belo
Horizonte, leaving the regional offices focus on operational and commercial issues
regarding the developments.
5
6. 3 - Macroeconomic scenario: winds are blowing in the right direction
The elements that allow for MRV to grow and exploit Brazil’s enormous housing deficit
apply to every other company in the sector: the country’s monetary easing process,
increased credit availability, economic stability and higher populations’ disposable
income. Nonetheless, MRV’s case is much more dependent on these fundamentals due to
its average client profile. Our view is that not only these conditions are sustainable, given
the current economic scenario, but are improving much faster than previously expected,
especially when credit availability is concerned.
As mortgages become increasingly affordable vis-à-vis other options such as paying rents
and the country’s economic stability is assimilated by the average Brazilian, the idea of
contracting mortgages, a long term commitment, is seriously considered.
Nonetheless, it was not long ago when as companies had to finance clients given banks
limited appetite for mortgages. In order to do that, construction had to be delayed as
much as possible so cash flows became smoother and working capital requirements
reduced.
The solution allowing MRV to meet client’s needs and desires became concrete as banks’
Private banks willingness to
willingness to lend money to homebuyers shifted from apathy to a frantic market share
lend money allowed for
fight. Banks came in to lend homebuyers money as soon as construction was finished, in
shorter construction cycles.
turn enabling the company to curtail the construction cycle, delivering products faster.
This way, besides solving marketing issues, the cash flows of a typical development were
improved as a project can be developed faster than previously, yielding better returns.
Mortgage conditions have improved much faster than previously expected by market
Mortgage conditions are
participants. As the recent offer of 90% of loan-to-value mortgages by Caixa Econômica
improving faster than
Federal reaches the overall market, in the near future, the biggest barrier to real estate
expected.
purchase decision, down payment, should be minimized. The down payment issue is
especially important when we put in perspective the fact that the Brazilian population is
not prone to savings. As a result, most of the low-income families cannot hold up for the
current 20% down payment standard.
On top of the favorable macro scenario, demographics in Brazil also show MRV has large
Demographics point to at
room to grow in the coming years. The most recent census in Brazil points out for the
least 21 target cities within
existence of at least 21 cities with around 200 thousand inhabitants, where the GDP per
MRV’s geographical reach.
capita indicates potential for MRV to prospect business. Our analysis included only cities
within MRV’s current geographic presence in the Southeast, South and Midwest regions of
Brazil.
Exhibit 7: Potential New Cities, GDP per capita vs. inhabitants
1,800
P o rt o A le gre
1,600
G ua rulho s
1,400
1,200
D uque de C a xia s
1,000
Osasco
800
C uia bá
N it e ró i
600 D ia de m a
C a xia s do S ul
F lo ria nó po lis
C a no a s
S uza no
400
P re s ide nt e P rude nt e
200
S ã o J o s é do s
A ra ç a t uba
Inda ia t uba P inha is
-
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
P e r C a pit a GD P ( R $ )
Source: IBGE, Bulltick
6
7. Exhibit 8: MRV’s Current Markets, GDP per capita vs. inhabitants
3,000
B e lo H o rizo nt e
B ra s í lia
2,500
2,000
C urit iba
1,500
C a m pina s
S ã o B e rna rdo do
C a m po
Sã o J o s é do s
1,000 C a m po s
Ube rlâ ndiaS a nt o A ndré
M a uá
Lo ndrina S o ro c a ba
P ira c ic a ba
B a uru S e rra
J o inv ille
500 M a ringá
T a uba t é J undia í
F ra nc a Ube ra ba
C o t ia
M a rí lia A m e ric a na
-
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
P e r C a pit a G D P ( R $ )
Source: IBGE, Bulltick
7
8. Valuation
We defined MRV shares price target using a DCF-based model and then compared its
We discount MRV’s cash
multiples with the peers in our coverage universe. In order to reach our DCF PT we
flows at the highest WACC
assumption among covered discounted cash flows to the firm (FCFF) at a WACC of 13.26% in R$ terms, the highest
companies. for companies in our coverage universe. We also applied a 4% nominal perpetuity growth
in R$ terms. Exhibit 11 depicts our discount rates, target capital structure, the resulting
WACC and valuation outcome.
Our total return target price for Dec. 2008 reaches R$44.00 for MRV shares, implying a
potential upside of 51.8% in R$ (or 35.3% in US$) and a BUY rating.
Exhibit 9: Discount and Growth Rates
US Risk Free Rate 4.5%
Brazil Country Risk 1.75%
Beta 1.30
Equity Risk Premium 6.0%
LT R$ Depreciation 2.0%
Ke (R$) 16.05%
Weight - Equity 70.00%
Cost of Debt, in R$, Before Taxes 10.3%
Effective Tax Rate 34.0%
Kd (R$) 6.77%
Weight - Debt 30.00%
WACC (R$) 13.26%
Forecasted Period 2007 – 2020
Perpetuity Growth 4.00%
Source: Bulltick
It is interesting to note MRV’s cash flows become positive sooner that those of other real
estate companies. The difference lies on its lower working capital needs, a direct result of
its business model. For more details please refer to the investment case section.
Exhibit 10: Cash Flows
2005 2006 2007E 2008E 2009E 2010E 2011E 2012E
EBITDA 25 22 21 243 446 629 760 844
Taxes (4) (4) (4) (40) (73) (102) (122) (136)
Change in Net Working Assets (20) (69) (330) (444) (434) (383) (222) (111)
CAPEX (0) (2) (3) (5) (3) (3) (3) (4)
FCFF 1 (52) (316) (246) (63) 142 412 594
Source: Bulltick
Main Valuation Assumptions and Sensitivity Analysis
Our DCF model main inputs are the potential sales value (PSV) of launchings and the
company’s typical sales velocity, client payments and construction schedule, from which
we derive cash flows. Except for gross margins, which we conservatively reduce at a 50
bps / year pace, we use the other inputs in line with the company’s current business
model. It is important to notice that so far the company has delivered results in line or
above these expectations.
We view MRV as well positioned to have sustainable and above-average launchings
growth. The company should deliver explosive 180% and 95% launchings growth in 2007
and 2008 respectively. Investors should bear in mind that the land bank to support this
growth is secured, as stated in 2Q07 results release. Additionally, we expect MRV to
deliver growth at ratios slightly above its peers in the long run. The normalized
launchings and growth assumptions in the 2008-2012 period for covered companies are
summarized in exhibit 13.
8
9. Exhibit 11: Launchings Growth 2008-2012
250
Growth: conservatively in
line with higher segment
225
companies under coverage.
Index (2007 = 100)
200
175
150
125
100
2008 2009 2010 2011 2012
MRV Company Cyrela Gafisa Klabin Segall Rossi Tecnisa
Source: Bulltick
The faster pace applied to construction by MRV results in faster revenue recognition when
compared to other players, as it can be seen on exhibit 13 below. Additionally, exhibit 12
shows our sales velocity and construction costs assumptions for typical MRV’s
developments.
Exhibit 12: Revenue Recognition Assumptions
6M 12M 18M 24M
Sales Velocity 60% 14% 14% 12%
Cost Incurred 17% 42% 42% 0%
Recognized Revenues 10% 33% 45% 12%
Source: Bulltick
Exhibit 13: Revenue Recognition Patterns
120%
Shorter construction cycle
100%
translates in faster revenue 100%
recognition.
80%
60%
43%
40%
20%
0%
Launching 1st Year 2nd Year 3rd Year
Cyrela Klabin Segall Rossi Gafisa
Company Tecnisa MRV
Source: Bulltick
9
11. Multiples Analysis
Besides valuing MRV through our DCF model, we also performed multiple comparisons in
order to better understand the potential upside of the case. Our preferred multiple to
follow is PER09E, as we view 2009 as a more normalized year, not only to MRV but also
for its peers, when most of the growth companies are undergoing will be already factored
in.
Based on PER09E we see MRV trading at 9.1x, slightly discounted to the average for the
companies we cover. In our opinion, though, given the company’s superior growth
prospects and positioning, we see room for multiple expansion going forward, as results
start to be delivered.
Exhibit 15: PER09E ratios
16.0x 15.2x
12.0x 11.3x
11.1x
10.1x
9.1x
8.0x
7.1x
6.5x
6.1x
4.0x
Klabin Company Tecnisa MRV Average Rossi Cyrela Gafisa
Source: Bulltick
Another multiple worth analyzing is PER adjusted to growth. Looking at the PER08E-to-
growth we separate more stabilized stories, with earlier capitalization in relation to MRV,
from those still in the upswing movement in terms of launchings and sales. Using this
multiple we view MRV discounted to most of its peers as shown on exhibit 18.
Exhibit 16: PEG08E ratios
0.60x
0.48x
0.50x
0.40x
0.31x
0.30x
0.22x
0.20x 0.16x
0.16x
0.14x
0.08x
0.10x
0.04x
0.00x
Klabin MRV Tecnisa Company Rossi Average Gafisa Cyrela
Source: Bulltick
11
12. Risks
As a real estate company, in our opinion, the major risk for MRV’s case lies on the
Risks: Brazilian
macroeconomic front. Although we classify this as improbable, if the Brazilian economy
macroeconomic scenario…
suffers any major downturn in the near future, it may impact interest rates and the
country stability, limiting growth for MRV and its peers.
Although in the short-term it is still far from being an issue to MRV given its geographic
… long run competition from
diversification, positioning and track record, we view the movements of big names like
the big three…
Gafisa, Rossi and Cyrela into MRV’s segment as a potential risk in the future. Increased
competition could impact margins and hurt the company’s profitability in the long run.
As a third risk impacting not only MRV but the whole sector, additional equity offerings
… and the real estate sector
expected to happen in the real estate sector could create short-term volatility for the
IPO pipeline.
shares as investors rebalance portfolios to participate in upcoming IPOs.
12
13. Brief Company Description
MRV story dates back to 1979 when it was founded in Belo Horizonte, Minas Gerais, by
Mr. Rubens Menin (current CEO). Over its long history in the real estate sector, MRV has
built a solid reputation among competition and especially with its clients.
Much before the Brazilian real estate sector boom, back in 1995, the company started
Geographically diversified
building the blocks to its current configuration by diversifying its operations
much before the current
Brazilian housing boom. geographically. Currently, MRV reaches 35 cities in 8 states. The expansion was backed
by a structure of regional offices, which help to coordinate efforts on a local basis, given
the considerable distance from some cities to the headquarters and the need for local
support during real estate developments.
Exhibit 17: MRV’s geographical expansion timeline
Nova Lima, St Barbara do
Oeste, Taubaté, Paulínia,
2007
Serra, Mauá and Cotia
Goiania
2006
2004 Mogi das Cruzes and Santo André
2003 Araraquara
Brasília, Rio de Janeiro and São Bernardo
2001
Maringá, Joinville, Marília, Jundiaí, Franca and
2000
São Paulo
Londrina and Curitiba
1999
1998 São José dos Campos and São Carlos
Piracicaba, Campinas, Sorocaba and Bauru
1997
São José, Rio Preto and Ribeirão Preto
1996
Uberaba, Urberlândia and Americana
1995
Contagem
1981
1979 Belo Horizonte
Source: MRV
The company is currently 100% focused in developing affordable housing, ranging from
100% focused in affordable
R$80,000 to R$200,000. It uses a highly standardized production process, based on 3
housing.
types of products: Parque, Spazio and Village. Alongside with its peers, the company
presented strong growth over the last couple of years given the improvements in the
Brazilian macroeconomic scenario.
Recently listed in BOVESPA’s Novo Mercado, MRV made a primary offering to prepare the
Listed in the Novo Mercado.
company to take advantage of the favorable winds and to profit from its unique
Primary-only offer prepared
positioning in the lower income segments. Exhibit 2 below summarizes the company’s
company to grow.
shareholding structure after the IPO conclusion.
Exhibit 18: MRV’s shareholders structure
Rubens Menin Autonomy Capital Unno Maio MA Cabaleiro
Free Float
Teixeira de Souza Two Sarl Participações Participações Participações
44,2%ON 11,6%ON 5,3%ON 2,5%ON 2,5%ON 33,9%ON
MRV
Source: MRV
13
17. APPENDIX A
IMPORTANT DISCLOSURES
Bulltick Brasil Consultoria e Assessoria Empresarial Ltda. is an affiliate of Bulltick LLC (The Firm). Bulltick LLC may do
business with the companies covered in this report, as a result, investors should be aware that the Firm may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report only as a single
factor in making their investment decision.
A. CONFLICTS OF INTEREST
From the companies covered in this report, Bulltick Brasil Consultoria e Assessoria Empresarial Ltda, or its affiliates,
currently has, or has had within the past 12 months, Tecnisa and MRV as client and/or received compensation for products
and services provided to this company.
From the companies covered in this report, Bulltick Brasil Consultoria e Assessoria Empresarial Ltda, or its affiliates,
managed or co-managed a public offering of securities for Tecnisa and MRV in the past 12 months, received
compensation for investment banking services from Tecnisa and MRV in the past 12 months.
Neither Bulltick Brasil Consultoria e Assessoria Empresarial Ltda nor any of its affiliates own equity securities of any of the
subject companies.
Analyst compensation is determined by Bulltick Brasil Consultoria e Assessoria Empresarial Ltda management and is not
linked to specific transactions or recommendations.
B. ANALYST CERTIFICATION
I, Rafael Pinho, author of this report, hereby certify that all of the views expressed in this report accurately reflect my
personal views about any and all of the subject issuer(s) or securities, no part of my compensation was, is , or will be
directly or indirectly related to the specific recommendation(s) or view(s) in this report. I have not received any
compensation from any of the subject companies in the past 12 months. I also certify that neither I nor any member of
my household serves as a director, officer, or advisory board member of any of the subject companies in this report.
C. INVESTMENT RATING
Investment ratings are determined by the ranges described below:
BUY: Total return of securities expected to be above 18% (in dollar terms) in the following 12 months
NEUTRAL: Total return of securities expected to be below 18% (in dollar terms) and above 8% (in dollar terms) in the
following 12 months.
SELL: Total return of securities expected to be below 8% (in dollar terms) in the following 12 months.
Price Target: The valuation method used to determine the price targets in this report were based on the discounted
cash flow methodology.
D. RISK RATINGS
Risks for the achievement of the target prices defined in this report include major change in our base case macro-
economic scenario, increase in interest rates and in the Brazil risk, reduction in the expectations for demand for real
estate in Brazil and impact on already listed stocks of new IPOs in Brazil´s real estate sector.
Based on last 6 months volatility of subject companies, and comparing them to the volatility of the Bovespa Index
(Ibovespa) in the same period, we define each subject company´s relative volatility in the following way: Company
High, Cyrela High, Gafisa High, Klabin Segall High, MRV High, Rossi Residencial High and Tecnisa High
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