Vistry hit by cladding costs in midst of takeover

A £1.25bn takeover bid, post-Grenfell cladding costs and the looming housing downturn: there is a lot to chew over in Vistry’s (VTY) results for the six months to 30 June.

Vistry said earlier this week that its tie-up with housebuilding competitor Countryside Partnerships (CSP) would create a £2.8bn housebuilder with the potential to generate £3bn a year in revenue. The move is a big tick for Vistry, which has capitalised on its strength and Countryside’s relative weakness to further grow the company. A £200mn loan from HSBC is being used to finance the deal and Vistry is more than capable of absorbing this considering its cash reserves.

Now for the bad news. Like so many of its housebuilding peers, Vistry’s results would have revealed an increase in pre-tax profit – were it not for £71.4mn in fire safety costs the housebuilder has put aside during the period. Also, like its housebuilding competitors, Vistry cannot say for certain how much it will be required to pay going forward. That decision lies squarely with the government.

Then there’s the housing downturn. Savills predicted back in May that house prices would rise 7 per cent this year, fall 1 per cent next year and that a few years of sluggish growth would follow. It could be wrong, of course, but its prediction for this year is looking correct so far.

Despite these political and macroeconomic issues, Vistry has performed well during this period and the takeover is a great move. Its price/earnings ratio and net asset value do not reflect this positivity, which is why we continue to see Vistry as an undervalued stock with an attractive dividend yield into the bargain. Buy.

Last IC View: Buy, 916p, 09 Jun 2022