Insider: CEO buys big stake in housebuilder yielding 9%

Like most other shares in the sector, this builder has fallen sharply, but the business is doing better than expected. A bombed-out small-cap has also seen buying action.

An upbeat boss of housebuilder Vistry Group (LSE:VTY) has bucked the gloom in the sector by spending £200,000 of his own money on the FTSE 250-listed company’s shares.

Greg Fitzgerald’s purchase was made near the end of a week in which the Bovis and Linden Homes business unveiled a £1.3 billion merger deal with Countryside Partnerships (LSE:CSP) and then posted interim results showing a 14.3% jump in half-year profits to £189.9 million.

The performance was much better than Vistry had forecast at the start of the year, fuelling confidence for a significant improvement in the full year outturn for both the company’s housebuilding and Partnership divisions.

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While mindful of current economic uncertainties, Fitzgerald continues to guide the City towards full-year profits of around £417 million. That would be an increase of just over 20% on the previous year and represent a second-half growth rate of 24%.

The company, which will pay a 3p higher interim dividend of 23p a share on 18 November, trades on a forward dividend yield of 9.1%. This reduces to 8% in 2023, according to UBS.

Shares rose 9% over the week to close on Friday at 800p, but that’s a fall of more than a third over the year, as valuations across the housebuilding sector are laid low by rising costs and fears over the demand impact of rising interest rates and household bills.

Its most recent figures show Vistry’s average private weekly sales rate for the year to date ahead of last year at 0.78, with demand in keeping with seasonal trends seen prior to 2020.

The Partnerships business, which works with housing associations and local authorities, continues to report progress underpinned by high demand for affordable housing.

Adding Countryside’s Partnerships operation should give Vistry greater resilience to housing market cyclicality, with greater earnings visibility and a strong forward order book.

The cash and shares acquisition, which still needs the approval of shareholders at meetings planned for late October or early November, is regarded by Bank of America as one that “makes a lot of strategic sense”. It follows on from a deal to buy Linden Homes in early 2020.

The bank highlights the creation of a leading player in Partnerships, with close to 6,500 completions a year compared with just over 2,000 for Vistry in the last financial year. In total, the new combined group will have about 14,000 completions, more than £4 billion of revenues and about £560 million of operating profit a year.

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As well as additional resilience, the bank’s analysts see the deal as giving Vistry greater scale and leverage for securing future Partnership projects, and also generating business synergies that can offset potential pressure on the housing side of the business.

On Monday last week, the bank said: “Vistry is making another bold move to become a larger and more defensive player in the UK housing market.

“We believe this could support some re-rating of the shares over time, despite the short term uncertainties on the demand outlook.” The bank has a “buy” recommendation and target price of 1,400p, which compares with UBS at 1,100p.

Fitzgerald bought his shares on Thursday morning at 803p, while Vistry later disclosed a £25,000 purchase by a person connected to finance director Earl Sibley at a price of 804p.

Maiden share purchase by this small-cap leader

The boss of Funding Circle Holdings (LSE:FCH), the small business lending platform whose valuation has dived by 90% since its £1.5 billion IPO in 2018, has spent £50,000 on her first purchase of the company’s shares.

The investment by Lisa Jacobs was made six months into her strategic plan, which is focused on creating a multi-product platform that aims to utilise a decade of R&D spending by enabling SMEs to pay and spend as well as borrow.

She left medium-term guidance unchanged in Thursday’s half-year results, but a prudent approach to economic conditions in the UK and US means 2022 income is now seen in the range of £140 million-£155 million. That’s £15 million lower than forecast in March.

The company, which connects SMEs with investors who want to lend, was set up in 2010 and has provided £14.5 billion in loans to 130,000 businesses since then. The half-year results showed £3.6 billion of loans under management in the UK, a fall from £3.9 billion the previous year due to the early repayment of Covid business interruption loans.

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Shares are down two-thirds this year, meaning Funding Circle trades at a 28% discount to its unrestricted cash balances of £183 million. Broker Peel Hunt said: “We see little in these results to catalyse an upward re-rating but the medium-term upside potential remains very large.”

Jacobs, who joined the company in January after stepping into the role previously held by co-founder Samir Desai, bought her shares on Thursday at around 37.8p. Oliver White, chief financial officer since 2020, made a similar £50,000 investment at 39p.

Shares closed the week at 36.95p, which compares with an IPO price of 440p in September 2018.