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Vistry - guidance raised

Nicholas Hyett, Equity Analyst | 12 November 2020 | A A A
Vistry - guidance raised

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: 1,206.00 | Buy: 1,207.00 | Change 12.00 (1.00%)
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Vistry says it is on track to deliver full year profit before tax at the top end of its £130m to £140m guidance range. The group expects to generate around £310m in profit before tax in FY 2021.

Management expects to resume dividend payments in 2021, paying out around 40% of annual profits.

The shares rose 4.6% 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.

The recent return to work is welcome, but it does mean the group will no longer be saving money on wages under the governments furlough scheme. Efficiency will likely improve as workers become more accustomed to new social distancing measures on sites, but Vistry is unlikely to reach its prior levels of productivity. This makes it all the more crucial that the group can keep selling its houses profitably.

If a prolonged recession follows the pandemic, demand for houses may also take some time to recover. Positively, Vistry had managed to increase its sales rate between lockdowns. However, despite some encouraging signs, the housebuilding sector isn't out of the woods yet.

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. If the worst happens the sector may need to aggressively control costs while living off its reserves for a bit.

Vistry's Partnership business, which does construction and development work with local authorities and housing associations, may offer some relief. Demand from councils is likely to hold up better if conditions do sour. The group has ambitious long term plans for the division, and if they come to fruition the group will be in an attractive spot.

Long term, the UK housing market looks attractive to us. The UK has 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 the economy fails to recover, Vistry could face serious challenges.

Vistry key facts

  • Price/Earnings ratio: 8.0
  • 10 year average Price/Earnings ratio: 12.3
  • Prospective dividend yield (next 12 months): 3.5%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Trading details

Since 30 July Vistry has recorded a private sales rate of 0.67 per outlet per week, compared with 0.58 last year. Pricing has remained firm and the group has sold all of its anticipated completions this year.

Vistry Partnerships is targeting over £1bn in revenue and operating margins of 10% in FY 2022. This is to be achieved by focussing on high margin land led contracting and mixed-tenure developments.

Vistry has stepped up its land buying activities in the second half. The housebuilding division has secured 3,237 plots across 16 sites so far this year for £179.2m. The Partnerships division has secured 2,157 plots across nine sites this year. Both divisions have secured 100% land needed for FY 2021. The group also secured 2,436 plots for the strategic land bank.

Management says the group is on track to reduce debt by more than expected this year. The group has access to £770m in committed banking facilities, with maturities spread out to 2027.

The group's forward order book stands at £2.7bn compared with £2.5bn in June. Of this, £1.5bn is housebuilding, £358m mixed-tenure and £811m contracting.

Find out more about Vistry shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.