The housebuilder has been confirmed as a Homes England strategic partner and awarded a £350mn grant as part of the government’s 2026-2036 Social and Affordable Homes Programme. This is the largest amount possible at this phase and should support the building of over 3,000 affordable homes.
This funding is expected to drive an uptick in partner-funded activity in the second half of the year.
The shares rose 17.0% in early trading.
Our view
Following the change of prime minister, there were fears that decisions on affordable housing funding could be delayed further. But today’s announcement removes that policy overhang, slightly improving the second-half outlook and boosting sentiment around Vistry.
Performance over the first half has been disappointing though, with the Middle East conflict and shifting mortgage rate expectations weighing on buyer demand. That led the group to offer steep discounts on its houses to boost sales and bring cash in the door, putting pressure on profitability.
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 increase in funding for affordable housing than many of its peers. Recent grants back that up, but it’s likely to be a slow-burning opportunity rather than a quick win.
Sales volumes should pick up in the second half, 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. 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.
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 has a lot of work to do to 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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