ii view: housebuilder Vistry expects even bigger profits

Reinstating the interim dividend with an estimated 4% future yield. Buy, sell or hold?

First-half results to 30 June 2021  

• Build completions up 76% to 5,351
• Revenue up 82% to £1.1 billion
• Pre-tax profit of £156 million, up from a loss of £12.2 million in H1 2020
• Interim dividend of 20p per share (2020: nil)
• Net cash of £32 million, up from net debt of £357 million

Guidance:

• Expects adjusted FY pre-tax profit of £345 million, 5% ahead of consensus market forecasts

Chief executive Greg Fitzgerald said:

"Following an effective operational integration, Vistry is in great shape and delivered a step change in financial performance in the first half.  The Group holds a unique market position with strength and capability across all housing tenures, and we are firmly focused on maximising the opportunities this brings. 

“Housebuilding delivered a significant improvement in margin in H1 and we expect this to continue, whilst Vistry Partnerships is firmly on track to deliver more than £1 billion of revenue in FY 22 and a margin in excess of 10%, driven by the accelerated growth of its higher margin mixed tenure revenues.”

ii round-up:

Housebuilder Vistry Group (LSE:VTY) today upgraded its full-year profit expectations following a buoyant first-half performance. 

The FTSE 250 constituent company now forecasts full-year adjusted pre-tax profit of £345 million, a 5% improvement on the consensus analyst market forecast. Adjust profit for the six months to the end of June came in at £166 million, up from £10 million in the pandemic-hit first half of 2020. 

Vistry shares rose by more than 4% in UK trading, leaving them at around double their pandemic low point struck in March 2020. Shares for larger rivals Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) are up by around 80%, while shares for seller of homes to travel impeded overseas investors Berkeley Group (LSE:BKG) are up by around 50%. 

Average weekly private sales rate for Vistry rose to 0.76 during the half-year, up 10% on the pre-pandemic first-half of 2019 at 0.691.   

Vistry operates both a traditional housebuilding business and a partnership business, which aids partners including governmental bodies and housing associations with affordable homes and regeneration projects. 

Total build completions during the half jumped 76% from the pandemic hit prior year to 5,351. Net cash of £32 million was up from net debt this time last year of £357 million. 

The interim dividend was reinstated with a payment of 20p per share declared, and follows a final 2020 payment of 20p per share made earlier in the year. 

ii view:

Vistry Group was formed following the purchase by Bovis Homes from Galliford Try of Linden Homes and their partnership and regeneration businesses in January 2020. It rates within the UK’s top-five housebuilders by build volumes. 

For investors, rising build cost inflation needs to be remembered, as do changes now required to meet environmental goals, both for its builds and for its operations. The confirmed national insurance increase to help pay for elderly care could also have some dampening impact on buyers’ finances going forward. 

That said, demand for new housing remains generally robust. Its partnership business also offers opportunities not seen at rivals, and cost material inflation is being countered by rising selling prices. In all, and with trading momentum clearly in its favour and the shares sat on an estimated future dividend yield of around 4%, investors will likely back Vistry over the long term.

Positives: 

• Differentiated business model
• Committed to returning excess capital to shareholders

Negatives:

• Uncertain economic outlook
• Rising raw material cost inflation

The average rating of stock market analysts:

‘Buy’