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Vistry - strong first half

Vistry's first half performance was 'significantly' better than expectations at the beginning of the year.

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Vistry's first half performance was 'significantly' better than expectations at the beginning of the year. Full year underlying profit before tax is expected around £417m, with margins in both Housebuilding and Partnerships to exceed targets.

Demand was 'good' across all areas of the business, with an 11% increase in average weekly private sales rate to 0.84.

Greg Fitzgerald, CEO, said: "Whilst mindful of the wider economic uncertainties, we are positive on the outlook for the Group and expect to see significant margin progression in the full year".

The shares rose 1.3% following the announcement.

View the latest Vistry share price and how to deal

Our view

The housing market remains defiant despite markets bracing for an imminent downturn.

2022 has got off to a flying start. Private sales rates and prices are on the rise and the forward order book supports the argument that demand doesn't look to be going away. Given supportive conditions, management shifted focus from cash preservation to ramping up completions. A good move in our view, with mortgages still relatively cheap and government policy supportive of lending to buyers.

However, it's hard to ignore the broader economic conditions. Higher house prices and a cost-of-living crisis means buyers spending power's being eroded. It almost feels inevitable that a softening in demand is on the horizon. Plus, costs are on the rise due to higher energy prices and wages.

Despite that, Vistry remains confident it can manage its way through the tough environment and continue to grow margins. The fact it's the Partnership business driving things forward is a positive, that reduces dependence on a strong private market.

The Partnership business involves construction and development work with local authorities and housing associations. 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 balance sheet is in a reasonable place too. That gives some breathing room if the market wobbles and allows management the flexibility to reinvest in growth if it remains buoyant. It also helps support the group's prospective 9.2% dividend yield, which has been boosted by the valuation coming under pressure recently. It's more important than ever to remember no dividend is ever guaranteed and if the environment changes, there'd be less cash available to share with investors.

Vistry offers something different to the broader sector and the valuation isn't too demanding. That could mark an attractive entry point for investors who feel current economic pressures will be short lived. It's worth remembering though, housebuilders are cyclical. That means a continued decline in economic conditions would put serious pressure on the entire sector.

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.

First Half Trading Update

Higher energy prices and wages are expected to push costs 6% higher across the year. So far, that's been fully offset by higher prices on private units in the region of 5%-8%.

In the Housebuilding division, completions rose from 3,126 to 3,219, of which 2,475 were private. Forward sales were broadly flat at £1.5bn. Gross margin's expected to exceed the previous target of 23%.

Partnerships completions rose from 895 to 1,106 and the forward order book rose 63% to £638m. Demand has been 'very high' given the need for housing across a range of areas, from local authorities to elderly accommodation. The higher margin division's expected to deliver operating margin in excess of the 10% target.

The partner delivery forward order book fell slightly from £890m to £835m, with 96% of forecast revenue for the current financial year has been secured.

The group's been busy in the land market. Housebuilding secured 3,360 plots and has all of the land required for next years completions. Partnerships had similar success, securing 2,166 plots at margins toward to top end of targets.

Net cash at the end of the period increased from £31.6 m to around £115.0m. Since 27 May 2022, £28.2m worth of shares have been repurchased as part of the buyback programme.

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: 8th July 2022