Vistry Group Plc (VTY) Ordinary 50p

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Vistry’s average weekly sales rate has risen by 11% to 0.81 in the period since 1 July, reflecting ‘strengthening’ partner-funded demand. The order book fell from £4.8bn to £4.3bn.

As previously announced, Vistry has secured a £50mn grant for affordable housing from Homes England. A number of new partner-funded deals are also expected to finalise before the year-end.

Full-year guidance has been reiterated, with build-cost inflation remaining at low single digit levels and year-on-year profit growth expected.

The shares fell 2.9% in early trading.

Our view

Vistry’s trading so far in the second half has been positive, helped by favourable government policies for affordable housing. Guidance for year-on-year profit growth looks achievable, but Vistry needs to string together a few more positive updates to rebuild investors' confidence after a series of profit warnings this time last year.

At its heart, Vistry’s Partnership model specialises in providing affordable housing by teaming up with local authorities and housing associations. These partners foot most of the bill, which frees up Vistry’s cash to deploy on more projects across the business and drive faster-than-average growth.

The government’s pledge to invest an unprecedented £39bn in affordable housing over the next decade marks a significant step up in funding. With this money beginning to flow, partner-funded activity is picking up. We think Vistry looks better-positioned to benefit from this tailwind than many of its peers.

The huge order book, standing at a mammoth £4.3bn, is a real asset. Vistry’s huge scale allows it to negotiate harder on prices of building materials, which should help it navigate build cost inflation better than most of its peers. Currently, the group expects build cost inflation to run at low single digits this year.

Despite these positives, last year’s troubles shouldn’t be forgotten just yet – there are still plenty of issues the group needs to iron out.

Vistry spread itself too thin and took its eye off the ball last year. A series of managerial missteps and accounting issues led to several profit downgrades toward the tail end of 2024. This raised serious questions about the new structure and internal controls, and seriously hurt the company's valuation.

The group’s partnerships model also tends to have a lower margin than ordinary housebuilding projects. While selling these houses as part of bulk deals brings more cash in the door in one go, it puts further downward pressure on selling prices, meaning there’s little room for error.

Net debt was improving at the last count, helped by the halt in dividend payments. Share buybacks remained ongoing last we heard, albeit at a much-reduced scale. But with a weaker balance sheet than most of its peers, shareholder returns aren’t the main focus, and there’s no guarantee that dividends will return this year.

Vistry looks well-positioned to benefit from government support for affordable housing. But management missteps have shaken confidence in the group’s profit targets. We think the worst is behind the group now, but we’d like to see concrete signs that management issues have been ironed out before getting too excited.

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.

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 LSEG. 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.

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