ii view: housebuilder Vistry slumps on second profit warning

Second-half trading update to 7 November

• Now expects adjusted pre-tax profit for 2024 of £300 million, down from a previous £350 million
• Now expects 2024 build completions of 17,500 homes, down from a previous more than 18,000
• Now expects year net debt below £89 million, down from a previous forecast of into net cash 

ii round-up:

Vistry Group (LSE:VTY) today issued a second profit warning in a month, with the housebuilder outlining further details regarding recently flagged build cost discrepancies.  

Adjusted full-year 2024 pre-tax profit is now expected to come in at £300 million, down from a £350 million estimate issued just a month ago. Understated costs at its Southern Division had risen by an additional £50 million. Build completions for 2024 are now forecast at 17,500 homes, down from over 18,000 in October.

Shares in the FTSE 250 housebuilder fell 19% in UK trading having come into this latest news down around 3% year-to-date. More traditional housebuilders Taylor Wimpey (LSE:TW.) and Persimmon (LSE:PSN) are down 5% in 2024, while the FTSE 250 index is up 5%. 

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

In addition to the impact on the financial year 2024, Southern division cost discrepancies are also expected to reduce profits in 2025 and 2026 by additional amounts of £20 million and £5 million – on top of the previously detailed £30 million for 2025 and £5 million in 2026.

Like rival Persimmon, Vistry's outlook comments also flag expected build cost pressures in 2025 as well as a £5 million hit from national insurance changes made at the recent Budget.  

Weekly sales per selling site had been running at a rate of 0.72 from 1 July to 7 November, up from 0.51 for the same period in 2023, although with the rate in September and October slower than management had anticipated.    

Current forward sales total £4.8 billion, up 12% on last year. The cash impact of South Division discrepancies is now expected to see year-end group net debt down from 2023’s £89 million, although not into the net cash position forecast as of October.  

A further trading update is scheduled for 15 January. 

ii view:

Formerly Bovis Homes, Vistry today operates across six UK divisions including the under the spotlight South division. The Kent headquartered housebuilder works with more than 150 housing providers across the country, including local authorities, for-profit registered providers and private rented sector bodies. Build completions for 2023 totalled 16,118. 

For investors, insufficient management capability, non-compliant commercial forecasting processes, and poor South division culture have all contributed towards required cost estimate increases now impacting profits. A provision of £8 million has been taken for other divisions this financial year. Raised cost estimates now see management reviewing the timeframe for its medium-term targets including the distribution of £1 billion of capital to shareholders, while changes in national insurance costs and rising building costs are now expected to be a headwind.   

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• Share Sleuth: performance over 15 years, and a share sale
• ii view: housebuilder Persimmon issues warning on rising costs

More favourably, divisional management changes are being made. Vistry’s more affordable housing product is likely to continue appealing to pressed consumers. A reduction in net debt is expected come the year-end, while Vistry continues to expect to complete its £130 million share buyback programme by the AGM in May 2025. 

Supportive government policy, falling interest rates, exposure to more affordable housing and ongoing shareholder returns all provide appeal. However, confidence is hard won and quick to lose, with a second profit warning likely to leave investors wondering if the bad news is all out there, or whether there's more to come. 

Positives: 

• Differentiated business model
• Ongoing share buyback programme

Negatives:

• Reduced business diversity
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold