Vistry chief eyes housing market bargain

The likes of Bellway (BWY), Redrow (RDW) and Taylor Wimpey (TW.) all trade at big discounts to their net asset valuations. But with Morgan Stanley predicting that mortgage rates will triple to around 6 per cent for the next 12 months, there isn’t a great rush of bargain hunters looking to seize on market mispricing.

Perhaps there should be. Although rising mortgage rates are important, it is the state of labour markets that have been the decisive factor in past housing market crashes, according to Oxford Economics. And the jobs market is (for now) still in rude health.

Oxford Economics is forecasting house price declines of about 10 per cent in the UK, but current valuations of housebuilders are so low they’re implying falls in capital values of up to 40 per cent, according to HSBC.

More expensive mortgages will undoubtedly weaken demand – Jefferies is forecasting a 25 per cent decline in volumes in the private sector, accompanied by a 10 per cent drop in prices and an 8-10 per cent increase in build costs. Even so, there is “significant upside” merely in housebuilders’ liquidation values, it said.

Vistry (VTY), a company that we have argued is undervalued, has a market capitalisation of £1.24bn, or just over half of its book value of £2.37bn. The mean target price of analysts following the company is around 880p, implying an upside of about 55 per cent on its current share price of 565p.

The purchase of almost £5mn of shares last week by Baker Estates, a company owned by Vistry chief executive Greg Fitzgerald and John Dunningham, is a sign that its boss also thinks there’s money to be made. The buys take their combined stake to 1.94 per cent.