Vistry posts revenue bump and profit slump

For several reasons, housebuilder Vistry (VTY) was a more expensive business to run in the last calendar year. As such, despite posting a bump in revenue in its results, it also posted a drop in pre-tax profit.

Some of these costs were exceptional. The £56.9mn administrative cost from its acquisition of Countryside won’t be repeated. However, the £96.1mn in post-Grenfell fire safety costs is more nuanced. That hit was the result of “ongoing investigations into properties developed where remediation works may be required”, which hints that there could be more fire safety expenses to come. Still, when these outgoings are discounted, adjusted pre-tax profit is up 21 per cent, suggesting the underlying business is doing well.

Adjusted pre-tax profit increased despite rising energy prices and wage inflation, which were responsible for a 9 to 10 per cent increase in its “overall cost base” for the last calendar year. If inflation has peaked, those costs will come down over the course of this year, but they could remain heightened nonetheless. A housing downturn this year is also likely to make things difficult, especially without the Help to Buy scheme, which accounted for 21 per cent of sales in 2021. Nevertheless, the company says it expects adjusted pre-tax profit to increase by more than 5 per cent to “in excess of £440mn” thanks in part to a fillip from its merger with Countryside. 

This is much more generous than the consensus estimate, based on 15 analysts’ forecasts of adjusted pre-tax profit of £403mn, which may explain why the company enjoyed a 3 per cent share price bump on the morning of its results. Still, even if Vistry’s forecast holds true, 2023’s adjusted pre-tax profit increase would be smaller than the 20.9 per cent adjusted pre-tax profit increase it posted for the last calendar year. That could help explain why the company cut its dividend payments by 8 per cent, although the dividend yield still catches the eye.

As for its current performance, forward sales have nudged up slightly compared with the same period last year, reflecting the fact that Vistry is a bigger company now. This is a major bull point when other volume housebuilders have posted big falls in forward sales in their most recent results due to the housing market slowdown. In short, bigger is better for Vistry and it’s for this reason that we remain confident and believe the current price/earnings ratio represents good value. Buy.

Last IC view: Buy, 815p, 8 Sep 2022