Interactive Investor

Insider: housebuilder director buys again at better price

Its new business plan received a further vote of confidence from this board member, who doubled his spending on shares in the past fortnight. A big purchase elsewhere could triple in value if this analyst’s forecast is right.

9th October 2023 09:15

by Graeme Evans from interactive investor

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A repeat order of Vistry Group (LSE:VTY) shares has been declared by one of the homebuilder’s newest directors at a price 16% cheaper than his first purchase just a fortnight earlier.

Non-executive Paul Whetsell made a swift return to the market on Wednesday by spending £39,558 on 5,000 shares, having paid £47,074 for the same number on 21 September.

His latest move took place on the day that analysts at UBS downgraded Vistry to “sell”. They said new targets under a strategy where Vistry rolls house-building operations into its higher return Partnerships business looked good on paper but “could be hard to execute”.

Vistry’s plan, which follows last year’s transformative merger with Countryside Partnerships, will see it focus on meeting the UK’s need for affordable mixed tenure housing.

It aims to pre-sell up to 65% of its total completions to local authorities as well as other partners, reducing risk and cyclicality in a capital light way. The FTSE 250-listed company’s new medium-term targets are for 40% return on capital employed, 5%-8% revenue growth per year and £800 million operating profit at a 12% margin.

Under the strategy, Vistry is aiming for the return of £1 billion to shareholders over next three years from ordinary and special distributions alongside the elimination of net debt.

UBS said the new business plan assumes a near-record level of completions for a single housebuilder, while it also questions whether Vistry can find enough capital light developments as others in the industry begin to pursue similar models.

Executing the business plan would result in a fair value of 1,430p but UBS thinks to get there the strategy is fraught with challenges. The bank cut its price target to 750p from 780p, noting that shares are already at the top end of the sector range on 1.4 times net asset value.

Other City analysts are more supportive, with Bank of America last month moving to 950p. It believes the new business model will maintain the company’s resilience, allowing it to outperform in what continues to be a tough time for the wider sector.

Peel Hunt, which has increased its price target to 1,300p, said Vistry was now focused on a part of the market where need is very high. The broker added: “Exposure to fluctuating mortgage rates is lower while the need for large land banks is cut, leading to surplus capital being released. A further £25 million of operating synergies is the icing on the cake.”

Despite the City’s optimism, the shares traded on Friday back at 798p compared with 912p prior to last week’s stock market turbulence. Wednesday’s session saw the stock fall by 7% amid the worst three-day run for the Bovis Homes owner since 2020.

The shares are still 25% higher over the year, having rallied from 636p in June. Whetsell, who is chief executive of US-based CapStar Hotel Company, bought his second tranche of shares at a price of 791.1p.

Outgoing CEO purchases shares

The imminent retirement of Capita (LSE:CPI) boss Jon Lewis hasn’t stopped him spending £94,000 on a bigger stake in the FTSE All-Share outsourcing company.

Lewis, who is due to stand down as chief executive by the end of the year, bought the shares at 16.5p. That’s half the price they were in the spring, prior to the company revealing a £20 million hit from a cyber incident that disrupted some client services.

Shortly after taking over as chief executive in December 2017, Lewis tapped shareholders for £700 million in a heavily discounted rights issue offering new shares at 70p.

Lewis, who announced plans for his departure on 31 July, said in August’s interim results that the consulting, digital services and software business was now “stronger, simpler and more focused”, with a platform to accelerate its growth in the medium term.

He stuck by guidance for 2023 results after half-year revenues rose 6% to £1.4 billion and adjusted profits by £8.4 million to £33.1 million. However, the company recorded a bottom-line loss of £67.9 million due to business disposals and the cyber incident.

Lewis is expected to stay with the business until July as part of the handover to Adolfo Hernandez, who is joining Capita from Amazon Web Services. Following Thursday’s purchase, Lewis held 2.7 million Capita shares equivalent to a 0.16% stake worth about £450,000.

Broker Peel Hunt recently highlighted a price target of 48p – three times the price Lewis just paid - backing the shares to re-rate as Capita delivers improvements in both margins and cash generation.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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