MRV (MRVE3) jumps 10%, Cyrela (CYRE3) rises 6% and more: construction companies have a strong increase with recommendations and IPCA-15

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The session was a boost for construction stocks, with a convergence of macro and micro factors leading to a buoyant session for assets.

This Thursday, MRV assets (MRVE3) stood out, jumping 10.33% (R$ 10.04), Tent (TREND3) appreciated 4.41% (R$ 7.57), Cyrela (CYRE3) closed with gains of 6.19% (R$ 18.71) and EzTec (EZTC3) rose 4.39% (BRL 17.13). Already directional (DIRR3) had a more modest increase, but still expressive, of 2.18% (R$ 17.35).

Earlier this Thursday, IBGE disclosed the inflation data measured by the IPCA-15, with May posting a lower than expected monthly increase of 0.51%, against a consensus of 0.64%. Services inflation slowed more than expected, driven mainly by lower airfares, which offset higher impressions in indoor and outdoor food, personal care, lottery prices, and regulated medicines.

With inflation data below expectations, the main interest futures contracts also fell, given the prospect that the Central Bank is closer to cutting the Selic rate, currently at 13.75% per year, which benefits construction companies, for projections that lower interest rates should stimulate the economy with cheaper credit.

In addition, the market continues to reflect JPMorgan’s recommendation revisions for the civil construction sector, highlighting that it is more optimistic precisely taking into account the recent macroeconomic improvement (with upward revisions to GDP). The bank raised its recommendation for the shares of Tenda de under weight (below market average exposure, equivalent to sale) to neutral due to a faster-than-expected improvement in gross margins, while strengthening MRV as its industry darling. It should be noted that last week, Credit Suisse has upgraded TEND3’s buy rating.

JPMorgan highlights the recovery of the sector, which increased 26% in the last three months (excluding Tenda) versus a 3% increase in the Ibovespa in the same period, driven by: i) expectations of a 50 basis point reduction in interest rates interest at 100 base points at the end of the year, ii) drop in monthly inflation; and iii) reduction of the risk of Brazil.

“Given this improvement in our macro data, we are reducing our equity cost projection by 120 base points (or about 9%), leading to a revision to the top of 30% in our prices-alvo by 2023. (…) Our order preferably
is: MRVE3, CYRE3, DIRR3, TEND3 and EZTC3”, the analysts point out.

The bank points out that the low-income segment must negotiate with an eye toward the changes expected by the Minha Casa Minha Vida (MCMV) program, which include higher subsidies, lower interest rates and a higher price cap, to be voted on by the FGTS Board of Trustees in June. In addition, the largest deployment of MCMV real estate financing in up to 35 years by Caixa Econômica Federal (CEF) should also be a catalyst, while investors also monitor Tenda and MRV comments on gross sales margins.

In addition to the MCMV, the contracting of units of the Pode Dentro program, a housing program in the city of São Paulo, during 3Q23 and 4Q23 also represents an important trigger for the low-income sector.

As for medium/high income companies, CYRE3 and EZTC3 trade with the interest rate easing cycle and its magnitude as the main catalyst. In this scenario, the preference remains for CYRE3, reflecting the
resilience of its results in the short term, especially in the margins. The results of EZTC3, in turn, may continue to be affected by the weak margins of the Parque da Cidade project.

The sector, especially in the middle and high income segments, should benefit on the macro front from: i) the slowdown in inflation; ii) discussion on the inflation target, which may impact the perception of investors
on the start of the cycle of easing; and iii) continuous fall in real long-term interest rates (10 years), analysts estimate.

JPMorgan has an equivalent buy recommendation for MRV, Cyrela and Directional. For MRV, the target price for December 2023 was raised from BRL 11 to BRL 13 (43% increase compared to the previous closing date); for Cyrela, from R$ 17 to R$ 21 (19% increase) and for Direcional, from R$ 19 to R$ 21 (24% increase).

As for Tenda and EzTec, the recommendation is neutral. For TEND3, in addition to the recommendation, the target price was raised from BRL 5 to BRL 9 (24% upside potential) and for EZTC3 it went from BRL 15 to BRL 18 (10% upside potential).

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