It has been a heavy two weeks for Mexican ADR shares like
housing company Desarrolladora Homex (
) with most reporting their quarterly figures to date. The
reports have been generally in line with expectations with some
standouts at the margins.
[caption id="attachment_69392" align="alignright" width="300"
caption="Housing construction by Homex of Mexico using aluminum
Despite the good news on quarterly earnings the benchmark
iShares MSCI Mexico Investable (
) has underperformed the S&P500 by about 1.5% in what is
possibly some profit taking from a 17% increase in the fund
Homex has not fared as well with a 17% drop in the last two
weeks, 9% of that after its earnings report on the 24
. Total revenue for the quarter increased 12.7% to $525 million
while earnings per share more than doubled to $1.76 per share.
The $826 million Mexican company develops, constructs and sells
entry-level and middle-income homes in Mexico and Brazil. Homex
also develops public infrastructures such as prison facilities.
The company's penitentiary projects contracted by the government
continue to be a large source of income, accounting for about a
quarter of total revenues. Homex CEO Gerardo de Nicolas said in the
conference call that the project was approximately 50% complete and
recognized at $284 million with the rest recognizable during this
The company had trouble in its Mexico housing division due to
the government's delays in titling mortgages, and approval delays
resulting from compliance with the new sustainability requirements
of CONAVI (the national housing commission). The CEO was quick to
point out that this was not an internal problem with Homex and was
affecting other builders as well. The company also faced problems
in its Brazilian division with delays in titling as well.
Investors reacted sharply to management's reduction of 3% to 4%
in revenue guidance ex-penitentiary projects for the year, to
growth of between 10% to 12% against last year. Including the
effect of the penitentiary projects, revenue guidance was lowered
to 51% to 52% from 58% to 61% previously.
At $11.75, the shares are approaching multi-year lows seen at
the bottom of the financial crisis in 2009. Expectations are for a
steep drop in revenue after Homex completes the penitentiary
project but earnings forecast are still around $2.81 per share next
year, leaving the current valuation at just over four times
earnings. Granted, management will need to actively develop revenue
sources to make up for the completion of the federal prison
project, but current valuation suggests the shares may be