Today we are going to talk about the largest low income homebuilder in Brazil: MRV & Co. (B3: MRVE3, OTC US: MRVNY).
Who will I be a partner with?
The company has common shares (MRVE3) listed on B3. It's ADR is traded OTC as MRVNY.
Shareholder composition of MRV & Co.:
32.32%: Rubens Menin Teixeira de Souza (Controlling shareholder)
67.68%: Free Float
Who is Rubens Menin?
Graduated in Civil Engineering at the Federal University of Minas Gerais in 1978, he interned at Vega Engenharia from 1973 to 1978.
In 1979, with the support of Vega Engenharia, he founded MRV Engenharia, the source of most of his fortune.
In addition, he owns other businesses, such as Banco Inter (B3: INBR32), Log Commercial Properties (B3: LOGG3), CNN Brasil, Rádio Itatiaia, Clube Atlético Mineiro, among others.
What is MRV & Co.?
MRV & Co. is currently made up of the following subsidiaries:
MRV Incorporação: Founded in 1979. Construction of residential projects within the scope of Minha Casa Minha Vida (MCMV) (low income, FGTS funding), Class (low income, SBPE funding) and Sensia (middle income, SBPE funding) segments. Profit Guidance 2025: R$700 million to R$1 billion.
Resia (formerly AHS Residential): Founded in 2012 by Rubens Menin and Ernesto Lopes (current CEO of Resia) and acquired by MRV & Co. in 2020 through a share swap. Construction of low-middle income residential developments in the United States for lease and subsequent sale to REITs (funding). Profit Guidance 2025: R$440 million to R$480 million.
Luggo: Founded in 2019. Business model similar to Resia. Construction of low-middle residential developments in Brazil for rental and subsequent sale to FIIs (Brazilian REITs) (funding). Profit Guidance 2025: R$55 million to R$70 million.
Urba: Founded in 2012. Subdivision company, construction of planned middle-income neighborhoods for sale. Funding: equity + SBPE. Profit Guidance 2025: R$80 million to R$100 million.
My Point of View:
What are the market's fears?
MRV Incorporação: gross margin compressed, the business is over!
MRV Incorporação: heavily in debt, will explode!
Resia: burning a bunch of cash, it will take the whole group to the hole!
Now let's assess the situation more calmly:
MRV Incorporation:
New MCMV will be an important avenue for growth.
Selic falling, accelerating sales and reducing financial expenses.
Company owned and with a good track record.
It already started generating cash in 4Q23, it is selling according to guidance and the gross margin is already improving quarter by quarter.
Growth has already occurred and will appear along with the evolution of the POC (percentage of completion).
"In the real estate segment, there is an important delay between operational improvement, improvement in financial results and then improvement in cash flow. The best opportunities occur when the photo is ugly and the film is beautiful." (Anderson Lueders, Real Investor Fund Manager).
Resia:
Fed Funds Rate should start to fall in 2024, increasing the spread between the Cap Rate (sale) and the Yield on Cost (construction) and enabling more sales of projects, translating into cash generation.
Golden Rule for 2024 (guidance): zero cash burn. The party of burning R$1 billion per year is over. New investments only with money from the sale of old ones.
In short, most of MRV & Co.'s problems will be resolved with the fall in the Selic and American interest rates, but...
Is it time to buy?
It is worth it?
Is it cheap?
After all, is it to buy this stock or not?
What is the price to buy and sell MRVE3 after all?
I'll show you all the rationale, in detail.
Let's go.