First Read Directional Operational 2Q26: Good operational cash generation, SoS below UBSe

Research evidence excerpt

First Read Directional Operational 2Q26: Good operational cash generation, SoS below UBSe

Forecast returns

Forecast price appreciation 51.0%

Forecast dividend yield 11.0%

Forecast stock return 62.0%

Market return assumption 18.5%

Forecast excess return 43.6%

Company Description

Founded in 1981 in Minas Gerais, Direcional began its business by developing buildings for

the low-income segment and infrastructure projects for the public sector. The company

has extended its operations over eight states, as well as the Federal District (Brazil's

capital), focusing on low- and middle-income developments.

Valuation Method and Risk Statement

We value Direcional based on PE methodology backed by a DCF.

Main risks:

- FGTS available budget: FGTS (workers fund), the main fund of the program, losing its

sustainability through: i) a change on the destination of resources to address other

sectors of the economy (as sanitation and infrastructure), and ii) a considerable increase

in FGTS withdrawals. Both points could reduce the resources available to the real estate

sector, damaging the health of the social housing program (MCMV).

- MCMV housing program sustainability: The non-implementation, cancellation,

suspension or scarcity of ‘Minha Casa, Minha Vida’ by government may affect the conduct

of the Company's business and its results, given the huge exposure that company owns to

this projects.

- Material costs increase: Since the homebuilder recognizes the revenue from its

properties’ sales according to the accounting method of financial evolution of

construction, an increase in the cost of an incorporation project may reduce revenue and

previously calculated profit. In this sense, increases in the price of construction