Vistry's average weekly sales rate since 1 July has been 0.60, down from 0.64 last year. This slowdown over the summer months was driven by the high-interest rate environment and inflationary cost pressures taking their toll on household income.
The group has not benefitted from the usual seasonal increase in private sales since September that it had expected, despite the continued use of buyer incentives.
The order book stands at £4.3bn with 100% of private units already sold.
Net debt is expected to fall from £328.7m at the half-year mark, to around £100m by the end of this year.
Vistry estimates the cost of transitioning its Housebuilding business into Partnerships to be around £40m. Including this impact, full-year pre-tax profit guidance now stands at around £410m.
A share buyback programme of £55m is expected to commence this year and be completed by March 2024.
The shares fell 4.8% following the announcement.
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Our view
In a third-quarter update, Vistry said it's making good progress on the strategy shift. The Housebuilding division is set to be wound up by the end of this financial year, with Vistry shifting its focus and resources solely towards its more defensive Partnerships business.
Partnerships specialises 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, which also dents margins. That's the main cause of the downgrade to full-year profit guidance.
But 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 £3.0bn Partnership order book is a real asset too, providing good revenue visibility with 90% already secured back at the half-year mark. 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.
The withdrawal of the Help to Buy scheme and increased mortgage costs have only intensified affordability pressures for buyers. Coupled with a historic undersupply of new homes in the UK, demand for the types of houses Vistry builds looks to be secured for years to come.
Looking to financial resilience, Vistry's slipped into a net debt position as it looks to drive growth in its Partnerships business. Fire-safety commitments are also taking their toll on cash resources. 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 next financial year.
Short term, the strategy change looks set to prop up Vistry's sales and volumes in what is a tough time for the housing market. But it also means the group's less exposed to tailwinds when the private housing market eventually gets wind back in its sails.
Vistry offers something different to the broader sector. It's an exciting time as the group transitions into a Partnership giant, but there will undoubtedly be plenty of operational hurdles to overcome. In the meantime, be prepared for further volatility.
Vistry key facts
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