Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Vistry - profits look set to beat previous guidance

Vistry's full-year underlying pre-tax profits are expected to land around last year's figure of £418mn.

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.

Prices delayed by at least 15 minutes

Vistry looks set to report full-year underlying revenue of around £4.0bn, down from £4.5bn.

The group completed 16,124 new homes in 2023, down from 17,038 in the prior year. Average selling prices fell by 4.2% to around £277,000.

Vistry's order book rose 12.4% to £4.5bn. There was a net debt position of around £90.0mn, compared to a net cash position of £118.2mn last year.

Full-year underlying pre-tax profit is expected to land around last year's figure of £418.4mn, ahead of previous group guidance for £410.0mn.

Heading into the new year, Vistry is optimistic that the current easing interest rates will help stimulate demand.

The group commenced a £55mn share buyback programme in December 2023.

The shares rose 2.7% following the announcement.

View the latest Vistry share price and how to deal

Our view

In a fourth-quarter update, we heard that Vistry's transition into a partnerships-focused business is well underway. This should free up capital to strengthen the balance sheet, as well as help fund the ongoing share buyback programme.

Partnerships specialise in providing affordable housing by teaming up with local authorities and housing associations. These partners foot most of the bill, which reduces risk and allows Vistry to operate as a capital-light business.

But that comes at a cost, as these tend to be lower margin than ordinary housebuilding projects. And selling these houses as part of bulk deals reduces risk further but lowers the average selling price.

That's exactly what we've seen play out for Vistry in 2023. Weekly sales rates were up but because average selling prices were down, total revenue fell by around 10%.

That's where Vistry's strategy change comes in though. Increasing its scale in the partnerships space looks set to increase future volumes, which should go a long way to offsetting the margin decline's effect on overall profits. And the increased size of the business has given it the bargaining power to renegotiate more favourable prices with key suppliers. All this has helped to keep pre-tax profits flat year-on-year, despite lower margins on partnership houses.

The huge £4.5bn order book is a real asset too, providing good revenue visibility. Partnership revenues are typically more defensive than those from ordinary housebuilding operations. The need for more affordable private and social housing doesn't go away because economic conditions look tough.

Looking to financial resilience, Vistry's slipped into a net debt position as it looks to drive growth in its Partnerships business. But winding down the traditional housebuilding business looks set to help. Land on the books that doesn't fit the new strategy is set to be sold off, and Vistry expects to return to a net cash position by the end of 2024.

Short term, the strategy change has propped up Vistry's sales and volumes in what's been a tough time for the housing market. While it's too early to call, there are some early signs that conditions are easing, with build cost inflation easing and lenders becoming more competitive on mortgage rates. But we see the group as less exposed to these tailwinds when the private housing market eventually gets wind back in its sails.

All in, Vistry offers something different to the broader sector. The group's still finding its feet as a Partnership giant and there will undoubtedly be plenty of operational hurdles to overcome along the way. In the meantime, we think other names in the sector look better placed to benefit if the housing market improves.

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

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.

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 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 disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 12th January 2024