Interactive Investor

ii view: shares at housebuilder Vistry fall after trading update

This FTSE 250 company is now refocusing on affordable homes and away from traditional house build sales. Buy, sell, or hold?

23rd October 2023 12:14

by Keith Bowman from interactive investor

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Trading update from 1 July to 20 October

ii round-up:

Housebuilder Vistry Group (LSE:VTY) today detailed an expected £40 million hit to its annual profit along with the loss of 200 jobs following previously announced plans to merge its private housebuilding division into its affordable homes partnerships business.

Required site revaluations given reduced home selling prices under the move towards affordable homes are now expected to leave full-year adjusted profit at around £410 million, down from a previous estimate of £450 million. 

Shares for the FTSE 250 housebuilder fell by more than 5% in UK trading having come into this latest news up by close to 16% year-to-date. That’s ahead of gains of around 5% for rivals Taylor Wimpey (LSE:TW.), Bellway (LSE:BWY), and Berkeley Group (LSE:BKG), and in contrast to an 8% fall for the 250 index itself during 2023. 

Vistry highlighted continuing demand for its mixed-tenure affordable homes built with partners such as local authorities, but a lack of an expected autumn pick-up in sales for its private housebuilding division. 

Recent discussions with key supply chain providers saw them agreeing to cost reductions for all existing and future contracts given the high level of visibility on forward sales, which the partnerships model brings. 

Vistry expects to deliver £25 million of annualised cost savings from the merger of its two divisions, which is in addition to the £60 million of savings following its previous takeover of builder Countryside.  

Under previously detailed plans to return £1 billion to shareholders over the next three years given the divisional merger, an initial share buyback of up to £55 million is planned for this current financial year.

Its next trading update is scheduled for 12 January. 

ii view:

Vistry Group was formed following the purchase by Bovis Homes of Linden Homes and its partnership and regeneration businesses in January 2020. After acquiring Countryside Properties during 2022, Vistry today operates from 32 regional UK divisions with plans under its internal merger to reduce this to 27. 

For investors, costs in relation to its planned internal merger have now been outlined. The merging of its more traditional housebuilding business leaves it without the likely upside for such a business during a potential housing market recovery going forward. Environmental considerations for the wider home-building industry should not be ignored, while the potential for unemployment to rise, impacting the bill-paying ability of renters and homeowners alike, also warrants thought.  

More favourably, demand for its partnerships business remains more resilient than for its traditional housebuilding division. Cost savings are being squeezed, net debt is still expected to reduce to £100 million by year-end, while the group’s differentiated business model looks to set it apart from fellow traditional housebuilders. 

In all, and while some caution looks sensible, a focus on shareholder returns including an estimated future dividend yield of over 5% is likely to keep existing shareholders at least patient. 

Positives: 

  • Differentiated business model
  • Significant medium-term share buyback programme

Negatives:

  • Reduced business diversity
  • Uncertain economic outlook

The average rating of stock market analysts:

Strong hold

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