Vistry’s strategy is built on solid foundations
HOUSEBUILDER Vistry’s transition to a partnerships giant meant its 2023 numbers held up better than those of many peers.
Partnerships involve working with local authorities to build affordable housing. Partners foot most of the bill, which reduces Vistry’s risk and frees up cash to deploy elsewhere in the business.
Markets heard last week that full-year underlying revenue rose by nearly 30% to £4billion. That was largely due to a full year’s contribution from the Countryside acquisition, which completed in 2022.
Having such a large partnership focus comes with drawbacks though. It tends to be less profitable than ordinary housebuilding projects – and often, many houses are sold in one go as part of a bulk deal, lowering the average selling price and squeezing profits further.
That’s exactly what played out for Vistry last year. While underlying revenue climbed around 30%, underlying operating profits only edged 8% higher.
Profit growth is likely to come under further pressure this year. But that’s where Vistry’s strategy change comes in. The growing scale of the group looks set to push up volumes. This should go a long way to offsetting the less profitable business. There are £4.5billion worth of orders in the pipeline too. Partnerships revenue is typically more defensive than those from ordinary operations. The need for more affordable private and social housing does not just go away because economic conditions appear tough.
Looking to financial resilience, Vistry has slipped into a small net debt position. But land on the books that does not fit the new strategy is set to be sold to help the group return to a net cash position by the end of this year.
The group plans to return £1billion of cash to shareholders over the next three years, via dividends and share buybacks. That figure is huge, representing around 25% of the company’s market value.
Vistry looks set to weather challenges of 2024 better than many of its peers. But when mortgage affordability pressures ease and the housing market picks back up, other names in the sector will catch more wind in their sails.
“This article is designed for investors who make their own decisions without advice. If unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”