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.
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.
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.
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