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Vistry - Sites to begin reopening

Nicholas Hyett, Equity Analyst | 23 April 2020 | A A A
Vistry - Sites to begin reopening

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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: 759.00 | Buy: 764.00 | Change -29.00 (-3.65%)
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Vistry has decided to reopen around 90% of its partnership sites and a "significant" number of housing sites on 27 April.

Since the lockdown began four weeks ago, Vistry has taken 132 reservations net of cancellations, exchanged on 170 homes and legally completed 193 private sales.

The shares rose 8.7% following the announcement.

View the latest Vistry share price and how to deal

Our view

When Bovis announced it was purchasing Linden Homes (the housebuilding arm of Galliford Try) we were broadly in favour, although we thought the timing was potentially problematic. The end of Help-to-Buy and potential Brexit related disruption could make conditions difficult in the sector. Digesting a large acquisition was only going to make things harder.

However, since then the COVID-19 pandemic has transformed conditions not only in housing but across the economy. The end of Help-to-Buy and Brexit barely register by comparison.

We suspect that very few people will be in the market for a new house in the next couple of months. If a prolonged recession follows the pandemic, demand for houses may also take some time to recover. Positively, Vistry has managed to keep selling during the lockdown, albeit at a reduced rate. However, the whole sector is probably facing at least a few months of seriously reduced demand, and possibly longer.

In a worst case scenario, both house prices and volumes fall, which can quickly blow a hole in profits. That's why Vistry and its peers are stressing the strength of their balance sheets. It looks like the sector is going to need to aggressively control costs while living off its reserves for a bit.

Last we heard, Vistry had £90m in cash and £225m in available credit, giving £315m of total liquidity. That is probably less than management would like, making cost control crucial.

Long term, the UK housing market looks attractive to us. We have a housing shortage, both political parties want to build more homes, and mortgages are relatively affordable. Ultimately, what really matters now is the length of the shutdown and the speed of the recovery. If we can get back to normality soon, then Vistry should be fine. But if current levels of disruption persist, or the economy fails to recover, Vistry could be in real trouble.

It's hard to talk about valuation for any company at the moment, and Vistry is no exception. We don't have a post-acquisition balance sheet, which makes calculating a price-to book ratio problematic. Profits for the foreseeable future are also virtually impossible to predict and could be non-existent this year.

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COVID-19 update

As of 21 April, Vistry's net debt stood at £440m, below prior expectations but up from £435m on 24 March. The group expects to receive around £40m from work already completed within the next two weeks.

Vistry has furloughed the majority of its staff on 100% of their normal pay, and expects this number to decrease as work resumes. Senior management have voluntarily agreed a 20% pay cut, effective from 1 April.

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 disclosure for more information.