Vistry's shares surge as it focuses on pre-sales

The board of Vistry (VTY) must be pretty pleased with itself. The company's shares leapt by 14 per cent on the day of its half-year results after the housebuilder said its "sole focus" will be selling “affordable homes” to organisations rather than individuals on the open market. The share price bump was a resounding vote of confidence in the move - or, at least, in the prospect of a "significant release of capital" (£1bn over three years) that Vistry expects to accompany the shift.

Under this "partnerships strategy", the housebuilder will look to sell 50 to 65 per cent of its homes before it builds them to its partners – typically councils, social housing providers and institutional residential landlords in the private rented sector (PRS). Some partners would let buildings, such as the PRS landlords or the councils, while others might sell them as shared ownership properties.

This arm of Vistry’s business, formed following its merger with Countrywide last year, currently accounts for 70 per cent of its forward order book, and the housebuilder says it is the part of the business which is doing best. The move would make it unique among its peers, who don’t look as ambitious or as willing to take risks to haul themselves out of their current slump.

The market may also be reacting to some of the other news in its results. The housebuilder posted a 31.4 per cent jump in adjusted revenue but an 8.4 per cent drop in adjusted pre-tax profit, which it said was due to “integration and further restructuring costs and an incremental fire safety provision recognised in relation to second staircase regulation”. Meanwhile, a £55mn share buyback will replace the half-year dividend, which the company said was down to the current share price “significantly” undervaluing its business.

We, too, feel investors have undervalued the business. Its balance sheet is weaker than its rivals, but we judge its ability to grow earnings as greater thanks to its partnerships model. Buy.

Last IC View: Buy, 757p, 22 Mar 2023