Vistry – volumes increasing but profit outlook unchanged

Vistry’s total weekly sales rates have averaged 0.96 year to date, up from 0.87. Pricing has remained “relatively flat” with buyer incentives running at around 4% of sales prices, down slightly from the 5% used throughout last year.

So far in 2024 the order book has grown 10%. £2.1bn of this is expected to be delivered this year.

Full-year volume guidance has been raised, with 18,000 new homes now expected to be completed in the period, up from 17,500. Despite the volume uplift, profit guidance was not changed, and markets still expect around £430mn of pre-tax profits this year.

£18mn of the current £100mn share buyback programme has been completed.

The shares were broadly flat following the announcement.

Our view

Vistry started the new year on the front foot, helped by its transition into a Partnerships giant. In a tough market, sales rates have improved over the period, and the group’s order book has climbed by 10% as a result.

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’re seeing play out. Despite the group raising guidance on the number of new homes it expects to build this year, the needle on the profit outlook hasn’t moved. Margins are likely to remain under pressure this year, as open-market sales look set to make up a smaller slice of the overall pie as it sharpens its focus on Partnerships,

That’s where Vistry's strategy change comes in. Increasing its scale in the partnerships space looks set to continue increasing 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 £4.9bn 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 last year,. 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. That figure looks like a steep target in our eyes. And 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.