Vistry shares were sharply lower on Friday after the company announced further profit reductions due to cost miscalculations at projects within its South Division.

The Vistry share price was down 13% at the time of writing.

Housebuilder Vistry Group has disclosed that problems in its South Division will more severely impact profits than initially reported, forcing the company to lower its full-year profit guidance to around £300 million.

Vistry had initially reduced profit guidance to £350 million when the issues first came to light.

The company revealed today that the total impact from issues in its South Division will reach £165 million, spread across three years, with £105 million hitting profits in 2024, £50 million in 2025, and £10 million beyond 2025. This represents a significant increase from earlier estimates, with issues primarily affecting sites from the former Housebuilding business.

An independent review conducted by a forensics team from a major accounting firm found that the problems were largely confined to the South Division and stemmed from “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture.”

The investigation identified 18 sites with cost adjustments exceeding £1 million each, with five large multi-phase sites accounting for about 60% of the total cost increases.

“Vistry delivered some more bad news for investors to build into their expectations. To set the scene, back in October, news broke that total build costs at nine of its housebuilding projects in the South had been underestimated. Revised estimates at the time caused a big £115mn hit to profit expectations, spread over a three-year period,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

The additional costs related to the South Division have overshadowed what was otherwise a positive trading update.

Vistry now expects to complete around 17,500 units in 2024, a reduction from previous targets. Despite challenging market conditions, the company reported a year-to-date sales rate of 1.02, up 42% from 0.72 in the previous year, though activity slowed during September and October.

Vistry outlook

The outlook may offer some solace for investors. Vistry maintains a strong forward sales position of £4.8 billion, up 12% from the previous year. While the company remains committed to its medium-term targets and capital distribution policy, including plans to distribute £1 billion to shareholders, it is reviewing the timeline for achieving these goals in light of the South Division issues.

The company welcomed recent government initiatives announced in the Autumn Budget, including a five-year social housing rent settlement and an additional £500 million for the Affordable Homes Programme, bringing the annual budget to £3.1 billion.

However, Vistry noted that the April 2025 increase in Employer National Insurance contributions will cost the company approximately £5 million in 2025.

The euphoria that swept across equity markets in the wake of Donald Trump’s victory yesterday was nowhere to be seen in UK stocks on Thursday, with the FTSE 100 falling after the Bank of England cut interest rates to 4.75%.

London’s leading index was down marginally at the time of writing, having spiked lower shortly after the Bank of England delivered a 0.25bps interest rate cut but warned the budget would be inflationary, slowing the pace of rate cuts in the coming months.

“This decision was expected by the market, but the timeline for future cuts has changed significantly over the past fortnight,” said James McManus, chief investment officer at J.P. Morgan owned digital wealth manager, Nutmeg.

“The significant increases to government spending set out in the Budget as well as a rise in wages, underpinned the OBR’s forecast for elevated inflation next year. It means a further cut before Christmas is now uncertain and markets expect only two more cuts of 25bps by September 2025, down from three at the previous meeting in September.”

Equity bulls who were hoping for support from lower borrowing will also be sorely disappointed by comments in the Bank of England press conference that inflation is projected to fall to target over the medium term without major changes in rates. This, coupled with the budget last week, means UK rates are likely to stay where they are in the coming months.

“The next 25bp Bank Rate cut, then, is likely to come in February, in conjunction with updated forecasts,” said Michael Brown Senior Research Strategist at Pepperstone.

“If, at that stage, policymakers have greater confidence in the disinflationary path being well-embedded, the pace of normalisation could well quicken through the early part of 2025. Quarterly cuts, though, remain the base case for now.”

In addition to bad news on rates, UK equity investors were digesting pretty poor corporate updates from BT Group and Autotrader that weighed on sentiment.

BT Group lost 6% after lowering its revenue forecast for the full-year period.

“BT shareholders enjoying a near 50% recovery in the share price this year from its lows may have had the wind taken out of their sails this morning reading this update,” said Adam Vettese, market analyst at investment platform eToro.

“The company has warned that revenue will be lower than previously indicated partly due to tough market conditions. The broadband market is extremely competitive and saturated with choice for consumers and BT has lost out as a result.”

Autotrader was the top faller after saying the second-hand car market remained ‘challenging’. Shares were down 7% at the time of writing.

Long-suffering BT shareholders faced yet another blow on Thursday after the telecoms group said they now saw lower revenue for the full year.

BT shares were down 3% at the time of writing despite the company affirming EBITDA outlook for the period.

“BT shareholders enjoying a near 50% recovery in the share price this year from its lows may have had the wind taken out of their sails this morning reading this update. The company has warned that revenue will be lower than previously indicated partly due to tough market conditions,” said Adam Vettese, market analyst at investment platform eToro.

“The broadband market is extremely competitive and saturated with choice for consumers and BT has lost out as a result.”

Higher competition was a central component in lower revenues over the most recent half-year period that ultimately cut profit before tax by 10% to £1bn.

The rollout of fibre continues apace but investors will be frustrated the huge number of people now using the service isn’t translting into improved financial performance for BT.

“Openreach is BT’s key asset, and as the fibre rollout gathers pace, it’s benefitting from higher prices and a more favourable mix of fibre vs. older technology,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“But new entrants are pricing aggressively, and there’s a weaker overall market for broadband and new homes, leading to 377,000 line losses over the first half. While the fibre build continues, BT’s most pressing challenge at Openreach is limiting these line losses.

“BT finds itself in a period where investors can see an end to the massive investment in fibre buildout, which should bring a material improvement in areas like cash flow, but the current market remains a challenge.”

Sainsbury’s shares eased off slightly on Thursday even though the supermarket giant announced rising operating profits amid strong grocery volumes in their half-year period.

Sainsbury’s has reported strong grocery performance with sales growth of 5.0% in its latest results, driving overall sales excluding fuel up by 4.6%. The retail giant saw like-for-like sales increase by 3.4%, with momentum building from 2.7% in Q1 to 4.2% in Q2.

The company’s core Sainsbury’s business showed robust growth, with its operating profits contribution rising by 8.7%, supported by strong grocery volume growth and an operating margin improvement of 20 basis points year on year.

However, this positive performance was partially offset by challenges in other segments, with General Merchandise and Clothing sales declining by 1.5% and Argos experiencing a 5.0% drop in sales. Argos is starting to be a drag on the group’s performance after several soft periods.

Overall, the retailer’s underlying operating profit rose to £503 million, representing a 3.7% increase.

“Sainsbury’s delivered a sweet set of first-half results, and investors will be relieved to see a volume-driven uplift in the Grocery business. But consumers haven’t been as hungry for General Merchandise & Clothing, which posted a decline in the period. That’s not been helped by its ownership of Argos, which gives it extra exposure on the general merchandise front and has weighed on overall performance a touch,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“But with that slip-up aside, Sainsbury’s continues to gain market share, and at a faster pace than competitors according to industry data. That’s been helped by its huge push to improve its service, products and value perception, which is helping to sway more customers to do their big food shop at Sainsbury’s, driving strong basket size growth.”

The FTSE 100 soared on Wednesday as Trump won the US election to earn his second term as President of the world’s largest economy.

However, the FTSE 100’s gains evaporated in choppy trade as the US session got underway as investors assessed the implications of Donald Trump in White House once more.

Hopes of an easier regulatory regime and tax cust helped propel equities higher, but concerns about inflation also sparked a wave of buying in the dollar and sent treasury yields higher.

“US and European markets raced ahead on projections for Donald Trump to win the US Presidential election,” said Russ Mould, investment director at AJ Bell.

However, Mould went on to explain that the initial reaction was not typical of the economic realities of Trump’s policies and cautioned risk remains on the horizon.

“The dollar strengthened and 10-year Treasury yields jumped to 4.406% on the assumption that Trump’s policies will stoke inflation and require interest rates to stay higher for longer. That sustained the rally in US Treasuries which has been in motion since mid-September when they traded at 3.623%.

“Trump’s desire to cut taxes and make things easier for businesses to operate should in theory give a near-term tailwind to US shares, with futures prices implying a strong opening to Wall Street later. The S&P 500 is indicated to open 2% ahead and the Nasdaq up 1.7%.

“The impact of higher inflation on corporate profit margins, and how interest rates might not come down as fast as previously expected, are real risks for investors to consider once the dust settles.”

Despite the abundant risks to the equity universe, most FTSE 100 shares were higher at the time of writing.

BAE Systems and Rolls Royce were over 3% higher on hopes of continued robust US defence spending. Ashtead was among the top risers, with investors eyeing a ramp-up in construction and infrastructure spending by Donald Trump.

The Scottish Mortgage Investment Trust enjoyed renewed optimism around tech shares with a 2.3% gain.

The stronger dollar weighed on gold prices, accelerating the unwinding of the safe-haven trade bult up before the election. This did gold miner Endeavour Mining no favours, sending shares down by 3%.

“Gold is retreating significantly today, falling below $2,700 per ounce in spot trading at the peak of the declines, erasing November’s gains,” said Samer Hasn, Senior Market Analyst at XS.com.

Persimmon was the FTSE 100 top faller, although the losses were nothing to do with the election. The housebuilder noted reasonable sales in early Autumn but warned of rising costs and the budget curtailing demand through higher National Insurance taxes.

“The housebuilding sector was supposed to be in a happier place as interest rates started to come down and the property market took a turn for the better. However, the latest update from Persimmon suggests the recovery might not be as straightforward as had been imagined,” Russ Mould explained.

“Costs are back on the rise and the company is warning of a potential impact from the Budget on this front too. The changes to stamp duty are broadly unhelpful to the business. If property prices soften then the company and housebuilding industry are back to facing the unhelpful cocktail which saw their shares come under significant pressure in recent years. Persimmon’s margins are already below long-term averages as it is.”