ii view: Vistry’s differentiated model behind profit rise

First-half results to 30 June

• Adjusted revenue up 11% to £1.97 billion 
• Adjusted pre-tax profit up 7% to £186 million
• Net debt reduced 6.6% to £322 million
• New share buyback of £130 million

Chief executive Greg Fitzgerald said:

"The Group has delivered a strong half year performance with Vistry's Partnerships model significantly outperforming the traditional housebuilding market. 

“The Group's growth strategy and greater delivery of affordable housing is well aligned to the new Government's ambitions to address the country's housing crisis, and uniquely positions Vistry to play a key role in delivering the Government's new housing targets.”

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ii round-up:

Vistry Group (LSE:VTY) today reported encouraging summer trading, with the affordable homes builder underlining its confidence in the outlook via a special payment to shareholders. 

A 9% increase in first-half build completions to 7,792 helped fuel a 7% increase in adjusted pre-tax profit year-over-year to £186 million. A £55 million share buyback programme will be accompanied by a £75 million special share buyback distribution. 

Shares in the FTSE 250 housebuilder rose over 7% in UK trading to within sight of a record high, having come into these latest results up 44% year-to-date. That’s significantly ahead of a 12% fall for sector giant Barratt Developments (LSE:BDEV) and comfortably ahead of a 7% gain for the FTSE 250 index in 2024.  

Selling across the three brands of Bovis , Linden and Countryside Homes, Vistry previously detailed a strategy to focus on affordable housing, partnering with organisations such as local authorities and housing associations to develop mixed tenure homes such as shared ownership.

Customer demand continues to underpin Vistry’s planned builds of 18,000 homes this current 2024 financial year, up from 16,118 in 2023. 

Forward sales totalled £5.1 billion as of the end of June, up from £4.3 billion a year ago with current builds 91% sold for the current financial year.    

Vistry flagged ongoing investment in land, people, skilled labour and timber frame manufacturing. 

Group net debt reduced to £322 million from £329 million at the halfway point in 2023, with management targeting a year-end net cash position. A third-quarter trading update is scheduled for 8 November. 

ii view:

Started in 1965, Vistry today employs around 4,500 people. Headquartered in Kings Hill, Kent, it operates via 26 regional businesses across the UK. The builder continues to target a return of £1 billion of capital to shareholders over three years, with £285 million already returned during the last 12 months and since its strategy update. 

For investors, the previous merging of its more traditional housebuilding division into the partnership business leaves it without the likely upside for such a business during a potential housing market recovery. The potential for unemployment to rise, impacting the bill paying ability of renters and homeowners alike, should not be forgotten, while a forecast price/earnings (PE) ratio above the three-and 10-year averages may suggest the shares are not cheap. 

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More favourably, Vistry’s differentiated business model now sets it apart from fellow traditional housebuilders. The affordable builder expects the new government’s housing policy to prove supportive. Cash generation is expected to move the company back to a position of net cash by the 2024 year end, while the payment of shareholder returns via buybacks potentially gives it added flexibility. 

On balance, and while some caution looks sensible, positive trading momentum and a differentiated business model are likely to keep Vistry on investors' radars.    

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