The entire world may drool over the BRICs, but in terms of spinoffs only the ‘B’ (as in Brazil) seems to matter. Homebuilder Gafisa SA (GFA) is the country’s latest potential spin opportunity as the company announced that it is considering its strategic options – a phrase that often includes a sale, IPO or spinoff – for its Alphaville Urbanismo SA project. The idea is to generate ”the highest potential value for Gafisa’s shareholders in the long run” as the company believes it is currently undervalued on a sum of the parts basis. The press release and company filings can be found in the investor page here.
While it sounds like an investor’s paradise, Alphaville is actually an ”urban development company focused on the sale of residential lots with unit prices between R$70,000 and R$500,000 thousand.” It apparently has a strong brand name in Brazil and is present in 60 cities within 22 states and the Federal District. Gafisa purchased 60% of Alphaville Urbanismo in 2006 from Alphaville Participacoes and has since increased its holdings t0 80%. According to the company, the average ROE during the 2007-2011 period was 46% and launches have grown from 237m Real in 2007 to 972m real in 2011. Those are some pretty impressive numbers during a very challenging time period.
Accoding to the Marketwatch article, Gafisa estimates the value of the 20% Alphaville Urbanismo it doesn’t already own at BRL359 million, very roughly putting the value of the entire unit at 1,795m real. I am not sure where they pulled that number from though.
Investors reacted postively to the news and the stock carried the Bovespa upwards and its NYSE traded ADR popped over 10%. Emerging markets can be tricky to invest in though so it is important to stay abreast of the local news and economic challenges. We will keep you updated as more information is released regarding the desired strategic option.
Disclosure: Author holds no position in any stock mentioned.