- Partnership business targets £1bn of revenue
- Cladding scandal still casts a shadow
Vistry (VTY) has been making up for lost time. In the early stages of lockdown, the housing market was put on ice and housebuilder profits tumbled. Construction sites roared back to life last year, however, and Vistry delivered 8,639 completions in 2021. This was 41 per cent more completions than the year before, and 7 per cent more than in 2019.
The building spree has resulted in an impressive spike in sales, profits and cash. Across the group, return on capital employed has also jumped to 25.5 per cent, up from a respectable 14.5 per cent in 2020.
Profitability at Vistry’s housebuilding arm has recovered well, with adjusted gross margins widening by almost five percentage points to 22.3 per cent. Meanwhile, the power of the group’s partnership business is starting to emerge. Mixed tenure revenue is growing fast, return on capital employed now exceeds 40 per cent, and the division “fully expects” to deliver its 2022 target of at least £1bn in revenue.
There are still macroeconomic pressures. In 2022, Vistry expects build cost inflation to reach 6 per cent, driven largely by wage increases. However, management said overall cost inflation was more than offset by rising house prices, and predicted a “significant step up” in profits and returns in 2022. (The year has already started well, with its private sales rate up 20 per cent, accompanied by price rises.)
Cladding continues to cast a shadow, however. The government seems set on forcing housebuilders to pay to fix the cladding crisis, and this creates a number of uncertainties for Vistry and its peers. Management said it cannot precisely estimate any additional costs, but thinks they could be in the range of £35mn to £50mn.
Remediation costs will make some investors uneasy. However, the strength of Vistry’s profit growth – plus a big order book for 2022 – is reassuring. Assuming trading holds up, its forward PE ratio of seven is also tempting. Buy.
Last IC View: Buy, 1,298p, 7 Sep 2021
|ORD PRICE:||1,006p||MARKET VALUE:||£2.2bn|
|TOUCH:||1,003-1,008p||12-MONTH HIGH:||1,351p||LOW: 852p|
|DIVIDEND YIELD:||6%||PE RATIO:||9|
|NET ASSET VALUE:||1,075p*||NET CASH:||£201mn|
|Year to 31 Dec||Turnover (£bn)||Pre-tax profit (£mn)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £675mn, or 304p a share|