Housebuilder Vistry's first half trading update reported a small rise in the average weekly sales rate from 0.84 to 0.86.
The Partnerships division which includes a contribution from Countrywide for the first time has seen completions nearly treble to 3,203. Its underlying first half revenue is expected to jump from £426m to £930m.
In Housebuilding, challenging conditions meant completions fell 22% to 2,847, with adjusted revenue down from £902m to £810m. Several bulk transactions have helped private sales prices remain resilient.
Net debt at the period end stood at £330m, compared to net cash of £115m a year ago. That reflected higher cash demands of the enlarged Group, as well internal investment.
Vistry noted a slowdown in private sales activity following recent interest rises. Nonetheless, underlying pre-tax earnings are still expected to be £450m. This is underpinned by targeted cost savings and 57% growth in forward sales to £4.2bn, largely due to the integration of Countrywide.
The shares climbed 1.7% following the announcement.
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Our view
Vistry's holding on to its recently upgraded full year pre-tax profit guidance.
Private sales rates improved early on in the new year, helped by an increase in customer incentives which is likely to keep a lid on margins. We remain cautious about the immediate outlook for the private housing market. Management has slowed build rates to reflect an expected decrease in year-on-year private sales rates, a trend that's been borne out in the wake of continued interest rate rises.
Despite that, Vistry remains confident it can manage its way through the tough environment and continue to grow margins. That's largely thanks to the Partnerships business, which involves construction and development work with local authorities and housing associations.
Revenues on this side of the business should be more robust. The need for more social and affordable housing doesn't go away because economic conditions look tough, and the huge £3.0bn Partnership order book is a real asset. We're supportive of Vistry's approach here, introducing more mixed tenure projects, which combine private ownership with social housing. This is helping to boost margins, while still providing large fixed-volume projects.
The purchase of smaller rival, Countryside Partnerships, back in November 2022 looks to be progressing well. This marks a bid to build scale and improve cost efficiencies, with around £60m in savings expected to be realised by the end of 2024. This should help to offset some of the pain being felt whilst build cost inflation remains a challenge for the industry to wrestle with.
Looking to financial resilience, key for any business in a cyclical sector like housebuilding, the Group's slipped into a net debt position over recent months as it looks to drive the growth of the Partnerships business. Fire-safety commitments are also taking their toll on cash resources. An update on spending priorities will accompany September's half year results, so keep an eye out for any changes to the dividend policy which may impact the 6.0% prospective yield. As ever no dividends are guaranteed.
Vistry offers something different to the broader sector, with its Partnerships business making it one of our preferred names in the sector. The valuation isn't too demanding either. There are some early signs that we've seen the worst of interest rate rises in the UK, but it's too early to call for certain so be prepared for further volatility.
Vistry key facts
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