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Vistry - trading update for the business formerly known as Bovis

Nicholas Hyett | 15 January 2020 | A A A
Vistry - trading update for the business formerly known as Bovis

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Vistry Group Plc Ordinary 50p

Sell: 1,164.00 | Buy: 1,165.50 | Change -36.50 (-3.04%)
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Vistry expects another year of record profits, slightly ahead of market consensus. That reflects improved sales rates and margins.

The shares were broadly flat following the announcement.

View the latest Vistry share price and how to deal

Our view

Now the acquisition of Linden Homes has been completed, Vistry (formerly Bovis) is a different and bigger beast than it was last year.

When Greg Fitzgerald took over as Bovis' CEO in 2017 the business was plagued by quality issues. But those have since been put to bed, and the group now boasts a strong satisfaction rating. Cost saving plans and more efficient designs mean profitability is improving too.

However, the £1bn acquisition of Linden Homes, the housebuilding branch of Galiford Try, changes things significantly. The tie-up creates a top five housebuilder with a greatly expanded geographic footprint. We think the deal has much to recommend it, as the combined company should be able to find significant cost savings.

But the timing could prove awkward.

Support from the Help to Buy scheme, which accounted for 25% of Bovis' sales, is set to end in 2023, and if Brexit doesn't go to plan we could endure a nasty economic shock. Should cracks in the wider housing market grow, the whole sector could be in for a rough time. Digesting a sizable new acquisition will only exacerbate any problems that arise.

We're yet to see any integrated reporting, but the balance sheet will be of particular interest. The recent deal was funded by raising additional equity and issuing new shares in the combined group, so debt levels shouldn't have jumped dramatically. Vistry reported around £362m of net cash in its most recent trading statement, but we'll reserve judgement on the group's overall financial position until we see a full balance sheet.

The group now trades on a valuation broadly in line with its peers, and income seeking investors will note that Vistry still offers a healthy yield of 5.3%. Still, with uncertainty around the country's economic future, that dividend shouldn't be seen as guaranteed.

Overall, this is an interesting time to be a Vistry investor. If management can navigate the integration process smoothly, and the broader economy holds up, then the future looks bright. However, problems may start to appear if the housing market turns.

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Full year trading update

Group completions reached 3,867 new homes, compared to 3,759 last year. Private homes totalled 2,678 units, compared to 2,567 in 2018, and there were 1,189 (2018: 1,192) affordable housing units. The average selling price for private homes rose 1.1% to £341,000, and the overall average selling price reached £279,000, which is an increase on last year's £273,200.

Vistry reported that uncertainty in the second half of the year led a 1-2% reduction in prices during the period. However, this was offset by easing cost pressures, resulting in a net margin improvement.

The group operated from an average of 88 sites during the year, and the sales rate increased from an average of 0.5 sales per site per week to 0.58.

Vistry has acquired 4,351 plots across 16 developments over the year, compared with 4,164 plots across 19 sites the year before. The group expects to report a net cash balance of around £362m, including the £150m raised in November for the acquisition of Linden Homes and Vistry Partnerships.

Find out more about Vistry shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.