EZ Tec: Time to Buy The Best Homebuilder in Brazil?
B3: EZTC3
Today we are going to talk about the best homebuilder in Brazil: EZ Tec (B3: EZTC3).
If you don't have an account in Brazil, you can buy shares in B3 using Interactive Brokers or ask your brokerage house to open a custody account in Brazil for you.
Who will I be a partner with?
The Zarzur family, controller of EZ Tec, holds 51.11% of the shares through various vehicles. There are no relevant minority shareholders.
Considering the beneficial owners, these shares belongs to:
7.82%: Flavio Ernesto Zarzur and family. One of the founders of EZ Tec, Flavio is a Civil Engineer graduated from FAAP. He was previously the company's CEO and is currently the Chairman of the Board of Directors and Vice-President of the company.
7.82%: Silvio Ernesto Zarzur and family. One of the founders of EZ Tec, Silvio is a Civil Engineer graduated from Mackenzie. He is currently a member of the Board of Directors and Chief Executive Officer, Incorporation and New Business of the company.
7.82%: Silvana Zarzur Alberto and family. Sister of the shareholders, Silvana does not hold an executive position in the company. She is married to Mauro Alberto, Administrative Director of the company.
7.82%: Marcelo Ernesto Zarzur and family. Arriving at EZ Tec after his brothers Flavio and Silvio, Marcelo is a Civil Engineer graduated from FESP. He is currently the company's Technical Director and Vice-President.
7.82%: Marcos Ernesto Zarzur and family. Arriving at EZ Tec after his brothers Flavio and Silvio, Marcos is the company's Commercial Director.
7.03%: Anna Lucia Zarzur Maalouli and family. Sister of the shareholders, Silvana does not hold an executive position in the company. She is married to Legal Dr. Roberto Mounir Maalouli.
4.98%: Samir Zakkhour El Tayar. Graduated in Accounting and Commerce in Beirut, Samir is currently Vice-President of the Board of Directors. He has 13 years' experience in textile trading and 38 years in real estate development, having been director of EZ Tec between 1979 and 2007 (28 years).
A person who does not appear in the shareholding structure, but is an important player in the company, is Emílio Fugazza. Graduated in Civil Engineering at UFScar, in 1997 he founded the Analisy's Consulting and Planning Group, a company specializing in management in the civil construction sector, acquired by EZ Tec in 2007, when he became the Planning Director. In 2008, Emílio was promoted to Financial and IR Director of the company.
A little about the history of EZ Tec:
Ernesto Zarzur, the family patriarch, is the son of Lebanese immigrants.
His father wanted him to work in the industrial sector, which was very common at that time for people of Arab descent.
But Ernesto wanted to follow his path and approached his brother Waldomiro Zarzur, partner in the construction company Zarzur & Kogan (who could imagine a successful partnership between an Arab and a Jew?). There he learned everything about incorporation.
In 1979, he founded EZ Tec with his two eldest sons, Flavio and Silvio, taking advantage of his 15 years of experience in the sector.
In 2007, they made an IPO on B3.
Ernesto Zarzur passed away in 2021. His children are running the business.
Ernesto never referred to himself as a businessman. “I am a real estate agent, and with great pride. I love selling” he said, patting his chest. He visited the stands on Saturdays and Sundays, encouraging brokers to close good deals.
He visited construction sites frequently and said: “I only build where my eyes can see or where I can get to on foot”.
What is EZ Tec?
Verticalized business model:
Incorporation
Engineering and Construction
Real Estate (Tec Sales)
In the beginning, they operated mainly in the middle and high income segment.
With the company's growth, today they are in more segments:
High-income
Medium-high-income
Medium-income
Low-income (Fit Casa)
Office (EZ Inc)
They are currently testing another segment: Residential for Income. EZ Tec builds and the group's company, Z Services, manages the locations.
They only build in the São Paulo Metropolitan Region (RMSP), preferably in peripheral neighborhoods.
They buy land in cash, not using the barter system.
They work without net debt in the holding company.
Strong cost control and high quality products, resulting in the highest historical gross margin in the sector.
They have never had a single loss in their public history.
My Point of View:
Time has shown that the developers that have been successful are those that are family-owned, like EZ Tec.
Its culture allowed a very low turnover of middle-senior management, something important to preserve the company's operational performance.
It is a survivor of the wave that made an IPO at that time in 2007/2008. It was the only developer that talked about profitability (margin), while its competitors only talked about Overall Sales Value and geographic diversification: a recipe for disaster.
The focus on Metropolitan Region of São Paulo allows for greater control of construction costs and greater synergies in sales, resulting in higher profit margins.
Own real estate agency (Tec Sales) proved to be fundamental. Competitors copied.
To also operate in the economic segment, they developed a format where these ventures have high profit margins, comparable to those of the higher income segments.
The focus on peripheral neighborhoods allows for greater profit margins, as land is much cheaper.
They are very conservative from the point of view of financial management, as they claim that the country is too unstable. They work without net debt in the holding company. Very few companies are like this.
The policy of always having cash allows for good acquisition opportunities in bad market times, when your competitors are hanging on.
Without cash pressure, they can also launch their ventures only when the market is hot, without rushing. Focus on long-term decisions. Better profit margins.
Another advantage of working with liquid cash: they can grant real estate financing directly to apartment buyers, even during periods of scarce credit. The financial income from these receivables is quite relevant and they do not usually transfer the portfolio to banks. EZ Tec is almost a bank focused on real estate credit.
They know how to make good use of capital market cycles: they carried out a large follow-on in 2019, when the share price was quite high, and recently they carried out share buybacks, when the price was quite depreciated.
In the next market rise, we can see the IPO of EZ Inc (office development arm) and Fit Casa (low-income residential), adding substantial value to EZ Tec.
The acquisition of the company Analisy's, in 2007, brought Emílio Fugazza, current Financial Director. As a result, EZTEC now has its own planning and management team for real estate developments, ensuring quality control and construction execution deadlines. These services also make it possible to monitor the expenses and costs of each project compared to the budget, as well as deal with any sudden variations in a timely manner. Few competitors have this level of financial control.
Despite this, Emílio Fugazza does not appear in the shareholding composition as relevant shareholders. It is not known how he is remunerated, how his family aligns his interests with the company.
Founder Ernesto Zarzur passed away at the end of 2021 and it is public that he had the final say in decisions. Despite the family's unity, there is a risk of conflicts over power.
Billionaire stock market investor Luis Barsi Filho doesn't invest in this sector at all, as many companies go bankrupt. It's a point of attention.
It is a super cyclical sector, practically as cyclical as commodities, but with more risk as there is a lower barrier to entry for competitors. It is good to be aware of this situation.
Is it cheap?
After all, is it to buy this stock or not?
What is the price to buy and sell EZTC3 after all?
I'll show you all the rationale, in detail.
Let's go.