ii view: housebuilder Vistry details a third profit warning

Trading update

• Now expects adjusted pre-tax profit for 2024 of £250 million, down from a previous £300 million
• Now expects net debt of around £200 million, up from a previous estimate of below £89 million

Chief executive Greg Fitzgerald said: 

"Today's announcement and the financial outcome for FY24 is disappointing.  Our top priority for 2025 is to continue building and delivering high quality mixed tenure new homes for our partners and private customers, and to do our part in addressing the country's acute housing shortage.  

“We remain committed to our partnership housing strategy and are firmly focused on positioning the business to move forwards and rebuild profitability. I would like to thank all our employees, our partners and our suppliers for their enormous hard work and commitment over what has been a challenging past few months."

• Invest with ii: Top UK Shares | Free Regular Investing | Open an investment Account

ii round-up:

Housebuilder Vistry Group (LSE:VTY) today issued a third profit warning following a combination of delayed transactions and completions and a reassessment of commercial terms on some deals with partners such as housing associations.

As such, the former Bovis Homes now expects full year 2024 adjusted pre-tax profit of £250 million, down from the £300 million estimated back in early November and £350 million forecast in early October. 

Shares for the FTSE 250 housebuilder fell 17% in UK trading having come into this latest news down around 29% year-to-date. Shares for more traditional housebuilders Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN) are both down around 15% during 2024. The 250 index itself is up almost 5%. 

Selling across the three brands of Bovis, Linden and Countryside Homes, Vistry’s strategy is now focused on affordable homes as it looks to partner with organisations such as local authorities and housing associations to develop mixed tenure homes like shared ownership.

Vistry had seen several agreements with partners which it expected to complete in 2024 take longer to conclude, which are now expected to complete in 2025.

Delays to some open market completions had also impacted, while management’s reassessment of the attractiveness of commercial terms on some deals had also fed into this latest lowering of expected profits.

Vistry did however flag recent good demand from partners with more than 70 transactions completed with organisations including local authorities and registered providers.

Delayed income from transactions is now expected to see year-end net debt of £200 million, up from its previous estimate of below £89 million. 

A full year trading update to 31 December is still scheduled for 15 January. 

ii view:

Started in 1965, the Kent headquartered housebuilder today works with more than 150 housing providers across the UK, including local authorities, for-profit registered providers and private rented sector bodies. Operating across six UK divisions, build completions during 2023 totalled 16,118, with 2024 completions previously flagged at 17,500 homes, down from a previous 18,000 or more. 

For investors, transaction completion delays and the reassessment of deal terms now add to insufficient management capability, non-compliant commercial forecasting processes and poor South division culture previously hitting profits. Raised cost estimates also previously saw management reviewing the timeframe for its medium-term targets including the distribution of £1 billion of capital to shareholders, while changes in national insurance and rising building costs were also only recently highlighted as impacting profits going forward.   

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• Two stocks backed for more success in 2025
• Investing in Berkeley Group is a long-term pursuit

On the upside, good demand from partners persists. Divisional management changes are being made. Vistry’s more affordable housing product is likely to continue appealing to pressed consumers, while management previously flagged hopes of completing its share buyback programme totalling £130 million by the group’s AGM in May 2025.

In all, good partner demand, supportive government policy, exposure to more affordable housing and ongoing shareholder returns all provide appeal. That said, confidence is hard won and quick to lose. A third profit warning will likely leave most investors awaiting evidence of at least a stabilisation in performance before taking any interest. 

Positives: 

• Differentiated business model
• Ongoing share buyback programme

Negatives:

• Reduced business diversity
• Uncertain economic outlook

The average rating of stock market analysts:

Hold