Shares in Vistry Group LON:VTY, owner of Bovis Homes, have had a good run over the last six months. Shares are trading at 982p, up from a recent low of 683p seen in October. The rally has come despite some fairly dismal numbers out of the UK property market.
Vistry Group stock is now up at level we last saw over the summer, and pushing into a 52 week high level. This will surprise many investors who thought we were looking at tough times for UK housing in 2024.
Vistry Group shares are still looking relatively cheap with a PE ratio just over 13x. The dividend yield is currently a respectable 5.71% which may explain some of the investor enthusiasm.
The merging of Vistry’s traditional housebuilding business is well underway and should free up capital to strengthen the balance sheet as well as fund both shareholder returns and the continued growth of the Partnerships division. This comes as the private housing sector’s had a tough time in recent years, with high interest rates reducing buyer affordability and driving down sales.
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Vistry Partnership revenue is more robust
In contrast, Partnerships’ revenue tends to be more robust – the need for more affordable housing doesn’t go away because conditions look tough.
“Vistry’s large-volume projects have held it in good stead, with completions only down 5.4% to 16,124 new homes, which is significantly better than most of its peers,” said Aarin Chekrie, an equity analyst with Hargreaves Lansdown. “As a result, full-year underlying pre-tax profit is now expected to come in at around £418.4mn, slightly ahead of previous guidance of £410.0mn.”
Vistry says it will report fully year underlying revenue of around £4bn, down from £4.5bn. Underlying pre-tax profit is expected at around £418m, in line with last year. The net debt position is approx £90m, compared to a net cash position of £118m last year, which is something to be cautious of as we reach those 52 week highs.
On the flip side, the current falling mortgage rates and easing build-cost inflation are both early positive signs heading into the new year. And with softer inflation figures now coming through, markets expect rates to fall over 2024, which would be a major tailwind for buyers by increasing their purchasing power.
“It’s too early to call, but if the housing market picks back up over the near-to-medium term, it’s likely that other names in the sector would benefit more than Vistry,” said Chiekrie.
Are Vistry share price gains justified?
Vistry does not stack up well when compared with some of its peers in a somewhat battered UK housing sector. Taylor Wimpey LON:TW. and Bellway LON:BWY are both in healthier shape when it comes to raw balance sheet and income statement. The real star in the pack is Redrow LON:RDW, which is seeing both a strong balance sheet and excellent cash flow metrics.
The red lights on the dashboard for Vistry are its revenue efficiency and its EBITDA. Revenue efficiency is an important factor for listed corporates in the property and housing sector. Our analysis indicates that Vistry should still be able to maintain strong cash flow metrics going into 2024.
Our prognosis? The share price performance is a good indicator that investors will pile back into this sector the moment the Bank of England cuts rates. But do have a look at Redrow if you get the chance.
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