Tie-up ‘newcomer’ Vistry building high hopes
IF YOU hadn’t been paying attention, you might have thought a new company had sneaked on to the stock market: Vistry.
In fact, it’s the product of Bovis buying Linden Homes, the housebuilding arm of Galliford Try.
The tie-up creates a top five housebuilder with a greatly expanded geographic footprint.
We think the deal has potential, particularly as the combined company should be able to find significant cost savings.
Bovis had already been making steady progress on that front.
Operating profit margins climbed from about 12.5 per cent in 2017, when the group was suffering from build quality issues, to 16 per cent in its most recent half-year results.
Last week’s trading statement showed further improvements. Cost savings offset lower prices, and Linden Homes was already producing operating margins of 19.6 per cent.
If the deal pans out, the combined group could see more progress.
Vistry said its sales rates had jumped significantly in the final quarter of the year. The group made 0.58 sales per site per week, compared with 0.5 previously, with increased demand from housing associations.
From a balance sheet perspective, the good news is the deal was funded by selling new shares, so debt levels shouldn’t have jumped dramatically.
We’ll reserve judgment until we see the first numbers from the combined group, though.
The biggest issue is the timing. While the UK’s future is more certain than it was a few months ago, Brexit could still throw up some surprises. A difficult integration process would pose problems. There are reasons for optimism, but housebuilders’ fortunes are often out of their control. The future looks brighter, but problems could appear if the economy turns.
Shares currently change hands for 10 times expected earnings, broadly in line with peers.
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