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Vistry – strong 2023 performance as strategy shift completes

Vistry delivered a robust set of 2023 numbers, with volumes of new homes set to increase in 2024.
Vistry - profits look set to beat previous guidance

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Vistry’s full-year underlying revenue rose 29.8% to £4.0bn. This reflects the enlarged size of the group after a full year’s contribution from the Countryside acquisition (November 2022).

Underlying operating profit grew at a slower pace of 8.2% to £0.5bn. Increased volumes of less profitable Partnership sales caused the associated margin to fall by 2.4 percentage points to 12.1%.

Free cash outflows worsened from £8.4mn to £74.9mn. Net debt stood at £88.8mn at year-end, down from net cash of £118.2mn.

Weekly sales rates have risen to 0.72 since the start of the year (2023: 0.61). In 2024, Vistry expects to deliver 17,500 new homes (2023: 16,118). Over the medium term, revenue is expected to grow by 5-8% annually, and underlying operating profits are expected to reach £800mn.

A new £100mn share buyback programme is set to commence in April, in place of the final dividend payment.

The shares were broadly flat following the announcement.

Our view

Vistry’s transition to a partnerships giant has meant its 2023 numbers have held up better than many of its peers.

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 frees up cash to deploy elsewhere in the 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. Despite full-year underlying revenue climbing around 30%, underlying operating profits only edged around 8% higher as margins came under pressure. Margins are likely to get squeezed further this year as more profitable open-market sales are set to make up a smaller slice of the overall pie.

That’s where Vistry's strategy change comes in. 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.

The huge £4.5bn order book is a real asset too, providing good near-term 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 should help on this front. Land on the books that doesn't fit the new strategy is set to be sold off and is expected to help Vistry return to a net cash position by the end of 2024.

This is driving the group’s ambitious shareholder return targets. The plan is to return £1bn of cash to shareholders over the next three years, through a combination of share buybacks and special dividends. While we anticipate continued buybacks, that figure represents around 25% of the group’s current market value and looks like a steep target in our eyes. As always, no shareholder returns are guaranteed.

In what is an uncertain housing market, Vistry’s strategy shift will likely help it weather the challenges of 2024 better than many of its peers. But when mortgage affordability pressures ease and the housing market picks back up, we think other names in the sector will catch more wind in their sails.

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, based on previous day’s closing values. 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.
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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.

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Article history
Published: 14th March 2024