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Vistry - dividend reinstated

Sophie Lund-Yates, Equity Analyst | 12 January 2021 | A A A
Vistry - dividend reinstated

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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: 1,164.00 | Buy: 1,165.50 | Change -36.50 (-3.04%)
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Vistry expects underlying full-year pre-tax profits of around £140m, the top end of its guidance range. That reflects a "strong" performance in the second half, with private sales rates improving, and completions are at the top end of expectations.

The Board announced plans to pay a "modest" final dividend.

The shares rose 1.9% following the announcement.

View the latest Vistry share price and how to deal

Our view

The COVID-19 pandemic has transformed conditions across the economy, but so far housebuilders have managed to escape any major damage. Before the pandemic struck, the end of Help-to-Buy and Brexit were the biggest concerns for Vistry and its peers, but the post-pandemic economy easily overshadows those risks.

The lockdown during the second half of 2020 did little to dent demand for Vistry, and it appears the UK's third national lockdown is having a minimal impact on Vistry's progress. The group managed to increase its sales rate even during the latest round of lockdowns. Demand risks posed by winding down the Help to Buy scheme and the end of a national stamp duty holiday appear to be minimal as well. Management noted a "significant" number of its FY 2021 reservations are due to complete in the second quarter, when those changes take effect.

Vistry was born out of a costly acquisition, the impact of which could be magnified if demand doesn't hold up. While Vistry's business has been able to continue operating throughout lockdown, the shutdown's wider impact on the economy poses an important risk. If a prolonged recession follows the pandemic, demand for houses could start to crumble.

Now that Vistry has been able to restart its operations and productivity is back at normal levels, the group is rightly moving forward with business as usual. The cash preservation we saw in 2020 is no more--management expects to carry an average net debt position in FY 2021 as works toward ramping up completions. This strategy makes sense, but if the housing market does start to soften, a strong balance sheet will be crucial.

Vistry's Partnership business, which does construction and development work with local authorities and housing associations, may offer some relief if conditions worsen. Partnerships' robust growth throughout 2020 despite the setbacks was encouraging. If the economy does take a wrong turn, we suspect demand from councils will hold up. 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 economic impact of what's hopefully the final national lockdown. If we can get back to normality soon, then Vistry should be fine. But if the current lockdown stretches on longer than expected, the economic damage could become a thorn in Vistry's side.

Vistry key facts

  • Price/Earnings ratio: 8.6
  • 10 year average Price/Earnings ratio: 12.0
  • Prospective dividend yield (next 12 months): 4.2%

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

During the second half of 2020, Vistry recorded a private sales rate of 0.62 homes, per outlet, per week (2019: 0.54). Despite the second national lockdown, the underlying sales rate rose 20% in the last 6 weeks of the year, compared to the same time last year.

At the end of 2020, Vistry's forward sales were £2.4bn. Overall housebuilding accounted for £1.2bn, mixed-tenure was £345m, and contracting was responsible for £800m.

Total completions for Vistry's Housebuilding business reached 4,652, compared to 6,884 in 2019. The bulk of those losses came from fewer affordable units-- 984, compared to 2,109 in 2019. Private completions were 3,668, compared to 4,775 last year. Joint venture completions were also lower at 820, down from 946 last year.

The total average selling price was around £302,000, with private sales reaching an average of £344,000. The group is currently operating from 146 active sites, and this is expected to rise to around 150 in the next financial year.

Vistry Partnerships saw completions rise this year, supported by strong demand from housing associations and local authorities. Mixed tenure completions in 2020 rose 28% to 1,479. The average selling price of mixed tenure units in the year was £218,000.

Management says the third national lockdown has had no impact on its business and expects completions to rise in FY 2021. The group has secured 40% of its forecast private units and 53% of private mixed tenure units. A "significant number" are due to complete in Q2 2021, despite changes to Help to Buy and the end of the Stamp Duty holiday.

Vistry Housebuilding secured 6,281 plots across 31 developments and Partnerships secured 2,371 plots across 11 sites. Both have secured 100% of the land needed for forecast completions in 2021.

The group noted its debt reduction programme was ahead of schedule. As of 31 December 2020, Vistry had a net cash position of around £38m, compared to net debt of £357.3m at the end of June 2020. The land creditor position as at 31 December 2020 is expected to be lower than the £372.3m as at 30 June 2020.

Vistry has access to £770m worth of banking facilities. Moving forward it expects to carry an average net debt position as it works to ramp up completions.

So long as there are no major disruptions to market conditions, management expects underlying pre-tax profit of £310m in the next financial year.

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.