High-Margin Residential Projects And Robust Landbank Will Drive Strong Future Performance

Catalysts

About Lavvi Empreendimentos Imobiliários

Lavvi Empreendimentos Imobiliários is a Brazilian real estate developer focused on high margin residential projects across multiple income segments in São Paulo.

What are the underlying business or industry changes driving this perspective?

• Robust launch and sales momentum in flagship projects like Le Six and Soleil, combined with disciplined launch timing in a challenging macro environment, supports sustained high revenue growth and preserves pricing power, underpinning net income expansion.
• A large and diversified landbank of BRL 9.5 billion, with exposure to both high standard developments in prime São Paulo neighborhoods and Minha Casa, Minha Vida projects, positions Lavvi to capture long term urban housing demand and drive recurring revenue visibility.
• A strong backlog of BRL 2.5 billion with a 36.4% margin and approximately BRL 800 million of gross profit to be recognized over the coming years offers earnings visibility and supports elevated net margins.
• Consistently high returns on equity of 28% and improving adjusted gross margins above historical levels, driven by a mix of premium projects and efficient cost control, indicate a scalable model that can translate incremental sales into earnings growth.
• Selective land acquisitions at attractive terms, with 20% of land paid in swap and 80% in cash representing 22% of PSV, combined with low finished inventory of 1.7% of PSV, enhance capital efficiency and may support stronger free cash flow and dividend capacity.

Assumptions

This narrative explores a more optimistic perspective on Lavvi Empreendimentos Imobiliários compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Lavvi Empreendimentos Imobiliários's revenue will grow by 20.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 23.8% today to 22.7% in 3 years time.
• The bullish analysts expect earnings to reach R$716.3 million (and earnings per share of R$1.75) by about December 2028, up from R$429.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as R$592.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from 7.2x today. This future PE is greater than the current PE for the BR Real Estate industry at 7.5x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 22.29%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A structurally challenging Brazilian macro and interest rate environment, with management repeatedly highlighting a difficult market and customer dependence on bank managers and credit approval, could structurally dampen housing demand and limit the ability to pass on price increases. This would pressure revenue growth and ultimately constrain net income expansion over time.
• Increasing cancellations, already rising and concentrated in Minha Casa, Minha Vida developments, point to long-term fragility in lower-income demand. This could intensify if government housing policies or subsidies change, which would undermine the economics of Lavvi’s sizable landbank exposure to this segment and weigh on revenue, gross margins, and earnings.
• Structural labor shortages in São Paulo construction, which management does not expect to normalize quickly, are already leading to longer construction timelines and planned delays in launches and deliveries. This pattern could become entrenched and erode Lavvi’s ability to convert backlog into recognized revenue while inflating costs and compressing net margins and earnings.
• The strategic push into large high-standard plots and massive projects such as Le Six and joint ventures with Cyrela increases Lavvi’s exposure to concentrated, premium product cycles in a market with limited available land. If demand for these higher-ticket units slows in a prolonged high-rate or weak-income environment, the company could face slower sales velocities, higher inventory risk, and lower returns on equity, weighing on revenue and net profit growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Lavvi Empreendimentos Imobiliários is R$20.0, which represents up to two standard deviations above the consensus price target of R$17.2. This valuation is based on what can be assumed as the expectations of Lavvi Empreendimentos Imobiliários's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$20.0, and the most bearish reporting a price target of just R$12.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be R$3.2 billion, earnings will come to R$716.3 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 22.3%.
  
• Given the current share price of R$15.9, the analyst price target of R$20.0 is 20.5% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.