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Vistry - profits up as demand remains

Full-year underlying revenue grew 32% to £2.7bn, reflecting increased demand across Housebuilding and Partnerships.

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Full-year underlying revenue grew 32% to £2.7bn, reflecting increased demand across Housebuilding and Partnerships. Underlying operating profits more than doubled to £368.4m, as margins recovered from a tough 2020 which was heavily impacted by lockdowns.

Following a positive start to 2022, and despite expected cost inflation of around 6% this year, the group believes it is ''well positioned to deliver a significant step up in profits and returns in 2022''.

The board is proposing a final dividend of 40p, bringing the total up to 60p for 2021.

The shares rose 1.7% following the announcement.

View the latest Vistry share price and how to deal

Our view

Today's results should calm some concerns investors might have had about easing property demand in the wake of a hot year for the housing markets. Strong performance was expected, with management raising guidance a few months ago, but it's pleasing to see the group deliver.

While there's still a chance that a-post pandemic economic hangover could materialise, 2022 has got off to a flying start with private sales rates and prices on the rise - the housing market appears to be on stable footing for now.

Worries about the shifting Help to Buy scheme proved overblown as Vistry's average monthly sales rate has continued to improve despite the changes. Add to that the government's commitment to propping up 95% mortgages, and you have a housing market that's firing on all cylinders.

Management have shifted focus from cash preservation to ramping up completions. This strategy makes sense, but there's no guarantee the accommodative environment can continue. The Bank of England's latest rate increase will make mortgages more expensive, and with speculation about another hike building, we can't rule out a softening in demand.

Supply chain challenges and cost inflation also cloud the picture ahead. For now, Vistry remains confident it can manage its way through the tougher environment and continue to grow margins. However, it's worth considering that if this trend continues, there's a limit to how much prices can rise before it hurts volumes.

Fortunately, Vistry's Partnership business, which does construction and development work with local authorities and housing associations, would offer some relief in that scenario. Partnerships' robust growth has been encouraging. In particular the introduction of more mixed tenure projects, which combine private ownership with social housing, have boosted margins while still providing large fixed volume projects. With demand for social and affordable housing only likely to increase we see Vistry's position here as highly attractive and a source of sustainable growth for years to come.

The group's balance sheet is in a reasonable place too. Vistry's net cash position has been growing and average month end net debt is seen falling in 2022. This should give the group some breathing room if the market wobbles, and allow management the flexibility to reinvest in growth if it remains buoyant. It also helps support the group's prospective 8% dividend yield, though no dividend is ever guaranteed.

Some level of demand is a given in the UK housing market. The UK has a housing shortage, both political parties want to build more homes, and mortgages are still relatively affordable. With conditions as they are, Vistry is well-placed among its peers with a valuation that isn't too demanding. That helps, as the environment is becoming more uncertain and there're plenty of potential headwinds.

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.

Full Year Results

The group's private sales rate increased by 43% to 0.76 per outlet per week, reflecting a focus on mid-range homes. Total completions, including partner delivery, rose from 8,954 to 11,080.

Vistry's forward sales as of 25 February totalled £3.0bn, up 15% from March last year.

11,798 new plots were added to the landbank with 7,721 plots added to the strategic pipeline, taking the totals to 42,770 and 40,000 respectively.

In Housebuilding, underlying revenue grew 39% to £1.8bn as completions increased 41% to 6,551 units. 21% of these were buyers under the revised Help to Buy scheme, down from 36% last year. The average selling price remained stable year-on-year at £305,000, as affordable homes made up a larger percentage of overall sales. An average of 143 sites were active, expected to be similar for 2022. Underlying operating profit for the division more than doubled to £305m.

Partnerships saw underlying revenue rise 19% to £864m. Mixed tenure completions rose 41% to 2,088 units with an average selling price of £236,700, up from £203,900. The increase in sales from higher margin mixed tenure developments meant underlying operating margins increased 64% to £80.0m. The division operated from an average of 33 mixed tenure sites, expecting that to increase to around 40 in 2022.

The group had a net cash position of £234.4m at the end of the period, up from £37.9m last year. Vistry's targeting an average month end net debt position around £100m, an improvement from £120m last year. Land creditors increased to £414.2m, up from £323.2m.

£25.2m has been set aside to cover potential fire safety costs due to cladding issues, with a charge of £5.7m taken in the last year.

The group said ''There was some easing of the supply chain towards the end of the year which has continued into the start of 2022, and overall cost inflation was more than offset by the benefit from sales price increases in the year.''

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.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 2nd March 2022