While MRV operations in North America (MRVE3), whose development began in 2020, are doing well, business in Brazil is slow. “The split is suffering the most. Inflation has brutally affected our operations. Rafael Minin, CEO of MRV, told analysts during an earnings conference call, on the performance of operations in Brazil, we have been through price much slower than inflation by about 30% from the start of 2020 so far .
It is no coincidence that MRV shares are among the lowest in the trading session, closing down 11%, at R$10.11, in the session after the results of the second quarter were announced. Still in Brazil, where the company has grown and developed in recent years, Minin made “mea culpa”: “We could have been faster in raising prices.”
According to the CEO, in 2020, the company was very aggressive commercially in the Brazilian market. In the past year, we have already noticed that inflation is going to get strong. We could have been more aggressive in passing the price. We have passed prices much slower than inflation. So, we see the gross margin is less than 20%,” he noted.
As reported by the company, gross margin in the development sector (the operation of Brazil’s affordable housing sector) fell from 30.4% in 2019 to 18.9% in the second quarter of 22. “It’s a ridiculously low number,” Minin admitted.
MRV and passing price
The CEO stated on the conference call that in recent months price transfers have accelerated, but that this squeezed margin will continue to show up in subsequent balance sheets.
“The gross margin of new sales we are seeing recover from month to month. We estimate that we will not have 30% inflation. Inflation will stabilize. He noted that we see some more favorable supply negotiations.”
Minin also says the company operates with a gross margin of new sales at the 30% level. “In the second half of the year, we’ll have a lot more launches. These launches will come with healthier gross margins,” he noted.
green and yellow house
MRV also reported that in the first half of this year, ticket sales for the Casa Verde e Amarela program averaged 11.06%, versus the National Building Cost Index (INCC) accumulated in the period at 7.53%.
Regarding the recent changes to Casa Verde and Amarilla, the company has stated that it will be fully acquired in the fourth quarter of ’22. MRV claims it acquired some of the program changes in July. According to the construction company, the changes will be important accelerators in the company’s margin recovery process.
Eduardo Fischer, co-chair of MRV (MRVE3), also commented on cost pressures. According to him, the workers’ agreement “was heavy due to inflation”, especially in São Paulo.
We’ve put that into the last budgets. Meanwhile, what has had an impact in the last 18 months, which is the material line, we’re seeing stabilization and some regression, Fisher commented.
The MRV executive said that prices of iron and concrete, critical construction inputs, are stable, and prices of PVC, copper and cable-related inputs are down in prices.
“He should stay. We are well protected in new sales margins due to inflation,” he concluded.
Analysis of the results
XP analysts noted that MRV results were poor, hampered by gross margin pressure and Stock swap.
Gross margin reached lower-than-expected levels of 19.4% (-6.0 points yoy and -0.4 points qoq), due to cost pressures, despite a reasonable increase in average price per unit in the quarter. As a result, net income was less than expected by R$58 million, negatively impacted by stock swaps,” XP Investimentos commented in a report.
Bradesco BBI notes that the 25% new sales gross margin does not reflect improvement in Casa Verde e Amarela (CVA) conditions, therefore, the evolution of this indicator should be the key point to consider in 2H22, along with the capital injection The long-awaited in Resia.
Bradesco BBI comments that MRV remains among the preferred names in the sector. In this way, it maintains a file Outperform (Above market average performance, equivalent to buying) The target price is R$17 compared to Wednesday’s closing price (10) of R$11.36, indicating a potential upside of 49.6%.
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