Maintaining Cost Control And Strong Backlog Will Support Future Profitability

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AnalystConsensusTarget
Consensus Narrative from 12 Analysts
Published
23 Mar 25
Updated
17 Jul 25
AnalystConsensusTarget's Fair Value
R$40.36
2.9% undervalued intrinsic discount
17 Jul
R$39.20
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1Y
37.9%
7D
-3.8%

Author's Valuation

R$40.4

2.9% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update01 May 25
Fair value Increased 1.56%

AnalystConsensusTarget has increased revenue growth from 14.3% to 18.4% and decreased future PE multiple from 13.2x to 11.2x.

Key Takeaways

  • Strategic focus on sales volume growth, cost control, and efficiency enhances both revenue growth and net margins.
  • Prioritizing net sales speed and prudent capital management supports cash flow, ROE, and earnings stability.
  • External and internal challenges, including weather delays, high capital costs, and regulatory changes, could impact Direcional Engenharia's project timelines, margins, and revenue growth.

Catalysts

About Direcional Engenharia
    Engages in the development and construction of real estate properties in Brazil.
What are the underlying business or industry changes driving this perspective?
  • Direcional Engenharia experienced significant growth in sales volume, which is expected to drive future revenue growth. This is evident from the tripling of sales revenue over five years, indicating strong demand and successful commercial efforts. (Impact: Revenue)
  • The company is maintaining discipline in cost control and efficiency enhancements, demonstrated by decreased expenses and increased operational leverage, which should bolster net margins as the scale of operations grows. (Impact: Net Margins)
  • A strategic focus on net sales speed and optimizing turnover is prioritized over simply increasing launch volumes. This approach is aimed at enhancing cash flow and maintaining healthy ROE, aligning with the goal of efficient capital allocation. (Impact: Cash Flow and Return on Equity)
  • With substantial deferred revenue and a robust backlog of high-margin projects, Direcional anticipates resilience and continuity in gross margin delivery, supporting stable profitability in future periods. (Impact: Gross Margin and Profitability)
  • The company’s approach of maintaining and extending long-term debt positions at favorable terms shows prudence in capital management, which should support sustainable earnings growth without excessive leverage. (Impact: Earnings Stability)

Direcional Engenharia Earnings and Revenue Growth

Direcional Engenharia Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Direcional Engenharia's revenue will grow by 18.4% annually over the next 3 years.
  • Analysts assume that profit margins will shrink from 19.1% today to 18.4% in 3 years time.
  • Analysts expect earnings to reach R$1.0 billion (and earnings per share of R$5.9) by about May 2028, up from R$638.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$1.2 billion in earnings, and the most bearish expecting R$856.0 million.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, up from 9.5x today. This future PE is greater than the current PE for the BR Consumer Durables industry at 8.5x.
  • Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 20.63%, as per the Simply Wall St company report.

Direcional Engenharia Future Earnings Per Share Growth

Direcional Engenharia Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Weather-related delays in Brazil, such as the rainy season in Q4, could impact the timing of new projects and revenue recognition due to delays in construction work. This seasonal disruption may lead to inconsistent revenue growth in the affected quarters.
  • High capital costs in Brazil are influencing a more cautious approach to launching new projects, potentially slowing revenue growth and affecting margins if the company cannot maintain sales volumes without aggressive discounts or incentives.
  • Inflation and foreign exchange rate volatility pose a risk to cost management and project budgets. If material or labor costs rise unexpectedly, this could compress margins and affect net incomes.
  • Regulatory changes in housing programs like Minha Casa Minha Vida may affect the addressable market or the eligibility of projects, impacting sales and revenue projections if the changes are unfavorable.
  • External economic uncertainties, such as global market volatility and political changes, may necessitate a more conservative financial strategy, possibly affecting growth plans and cash flow, and leading to increased focus on maintaining liquidity and reducing leverage.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of R$37.942 for Direcional Engenharia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$44.0, and the most bearish reporting a price target of just R$27.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$5.6 billion, earnings will come to R$1.0 billion, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 20.6%.
  • Given the current share price of R$34.92, the analyst price target of R$37.94 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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