Vistry’s first-half average weekly sales rates rose 2% to 1.03. This was helped by discounts on private sales increasing from 1.4% to 7.1% of book price as the group looked to speed up sales and bring in more cash.
Around 6,100 new homes were built in the period, 11% below market forecasts. The order book declined 9% to £3.9bn.
The net debt position stood at £470mn at the half-year mark. Build cost inflation is stabilising at around 3-4%.
First-half pre-tax losses are now expected to be around £30mn, and full-year underlying pre-tax profit guidance was downgraded from around £223mn to £200mn. Both metrics exclude the impact of the ongoing CEO review, which is expected to lead to further one-off profit impacts.
The group expects its net cash position to be in excess of £100mn by year-end.
The shares fell 12% in early trading.
Our view
Vistry had a tough first half, with the Middle East conflict and shifting mortgage rate expectations weighing on buyer demand. That’s led the group to offer steep discounts on its houses to boost sales and bring cash in the door. But it’s also contributed to a decline in profitability, and full-year profit guidance was downgraded again.
While private house sales remain part of the mix, Vistry’s Partnership model specialises in providing affordable housing by teaming up with local authorities and housing associations. These partners foot most of the bill, which in theory, frees up Vistry’s cash to deploy on more projects across the business and drive faster-than-average growth.
Chasing this faster growth has stretched the business, tying up too much capital in projects across the country. Net debt has ballooned to nearly £0.5bn, so buybacks and dividends remain paused until the balance sheet has been strengthened.
The freshly minted CEO isn’t wasting any time trying to get his house in order. Land purchases have already been scaled back, overheads are being trimmed, and unfavourable contracts are being renegotiated. Alongside further strategic land sales and an improved focus on building in higher-margin regions, the group’s optimistic that it can reach a net cash position of over £0.1bn by year-end.
Vistry looks better-positioned to benefit from the government’s focus and improved funding for affordable housing than many of its peers. But it’s likely to be a slow-burning opportunity rather than a quick win.
Sales volumes should pick up in the second half though, helped by the usual seasonality in the business and the timing of certain partner-funded activity. But after a poor first half, the downgraded full-year profit guidance still looks like a tough ask to us. It would require profitability to reach levels not seen since the peak of the COVID-linked housing market recovery. As a result, we wouldn’t rule out further disappointments ahead.
The huge order book, standing at a mammoth £3.9bn, is a real asset. Vistry’s huge scale allows it to negotiate harder on prices of building materials. This should help it navigate build cost inflation better than many peers, as knock-on effects from the Middle East conflict look set to push up material and labour costs.
Vistry looks well-positioned to benefit from long-term government support for affordable housing. But the new CEO will need time to find his feet and reshape the group’s priorities. In the meantime, with a tough housing market and a track record of under-delivering operationally in recent years, we think profitability is likely to remain under pressure in the near term.
Environmental, social and governance (ESG) risk
Most housebuilders are relatively low risk in terms of ESG, particularly for those in Europe. However, there are some environmental risks to consider, from direct emissions to the impact of their buildings on the local ecology. The quality and safety of their buildings is also a key risk.
According to Sustainalytics, Vistry’s management of ESG risk is strong.
It doesn’t disclose its greenhouse gas reduction initiatives, but it has set itself targets and deadlines. And its reporting of direct and indirect emissions is in line with best practice. However, there’s currently no disclosure of an established product and safety programme or disclosures around recycled material usage.
Vistry key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. 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.
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