Vistry is showing signs of life after the house builder said it expects profits to rise as its partnerships model leads outperformance compared with the rest of the sector.

After recently earning promotion to the FTSE 100, Vistry has hit the ground running releasing an upbeat trading statement highlighting improving demand and an expected 10% increase in adjusted operating profit for the full year.

Investors will be encouraged by the bullish outlook for completions as the company said it expected to deliver over 18,000 completions during the full year – a sharp jump from last year’s 16,118 completions.

Higher profits and completions guidance were underpinned by rising sales rates which hit 1.21 in the first half of 2024 compared to just 0.86 in the same period last year. 

“It has been a good week for builders following Labour’s election win and bold housing pledges. Vistry Group will look to reap the benefits as demand for affordable homes should see the firm’s profit rise around 7%,” said Adam Vettese, analyst at investment platform eToro.

“This is quite the turnaround from long-term material cost increases due to inflation, as well as a slow rate cutting cycle dampening the market for new home sales. Cost pressures are starting to ease and the first rate cut is likely just around the corner, so if the new government is true to its word it could be a great time to be in the housebuilding sector.”

Shares were slightly down on Tuesday after the stock embarked on a robust rally in the run-up to last week’s election.

The new Labour government’s approach to housebuilding will be highly supportive of Vistry’s business model and promise favourable outcomes for investors. The election victory was well-telegraphed by the polls, and investors bid the housebuilding sector up in the preceding weeks. However, the sector dipped in the wake of the election in a classic ‘buy the rumour, sell the fact trade’.

“A Labour government could provide a tailwind for Vistry compared to other traditional homebuilders. With promises of 300,000 houses annually, they are expected to release more land and offer taxation support, along with backing on planning, particularly for affordable housing,” said Yanmei Tang, Analyst at Third Bridge.

This little software solutions business, which is capitalised at just under £12m, is now beginning to turn around from losing money over the last three years.

Recent new business wins and existing contract renewals will help to drive its ARR to well over 75%.

I like that, especially if ongoing operating costs can be contained tightly enough to see good bottom line results in due course.

The Business

The itim Group (LON:ITIM) was established in 1993 by its founder, and current CEO, Ali Athar.

Initially it was a consulting business, helping retailers’ effect operational improvement, before six years later expanding into the provision of proprietary software solutions.

By 2004 it was focused exclusively on digital technology.

Over the years the company has grown both organically and through a series of acquisitions of small, legacy retail software systems and associated applications which itim has redeveloped to create a fully integrated end to end Omni-channel platform.

Today is principally operating as a Software-as-a-Service (SaaS) based technology company.

It enables the store-based retailers to optimise their businesses to improve financial performance.

Its solutions include Unify Sales, Unify Stock, Unify Pricing & Promotions, Unify Supply and its Profimetrics AI Suite, which is a multi-level management, simulation and optimization engine. T.

It has developed an omnichannel platform that enables retailers to adopt an engaging customer-centric approach to shopping in-store, online and on mobile.

Its retail software solutions support multi-channel sales and service, enterprise order management, price and stock optimisation, and supplier management.

Recent Big-Name Wins

In late February it won a five year multi-million-pound contract for its Omni channel retail platform with QUIZ clothing, a fashion retailer specialising in occasion wear and dressy casual wear with 73 stores and 274 concessions in the UK.

Two months later it announced an additional services contract for its Unify platform with toy retailer The Entertainer which is opening in over 800 Tesco stores across the UK and Ireland.

In the middle of May it announced a five year multi-million-pound contract renewal with Majestic Wine, the UKs largest specialist retailer with over 200 stores.

Earlier this month it announced that it had signed a five-year multi-million-pound contract with Assaí Atacadista, the largest Brazilian wholesaler, with more than 300 stores.

The Equity

There are some 31.2m shares in issue.

Larger holders include the Athar family (38.40%), Lewis family (18.07%), Robert Frosell, Dir (7.64%), Herald Investment Management (6.37%), Curtis family (4.12%), Ian Hayes, Dir (2.72%), Michael Jackson, Chmn (1.76%), Sandra da Costa Ribeiro, Dir (0.87%) and Justin King (0.742%).

Analyst View

Charlie Cullen and John Cummins at WH Ireland consider that this group’s shares are trading on an undemanding rating compared to their ‘fair value’ of 55p a share.

For the current year to end December they have estimated revenues of £17.0m (£16.1m), with its pre-tax loss easing to just £1.0m (£1.1m), leaving the company with £0.5m cash at bank.

For next year the analysts see a turn into profits of £0.4m on the back of £19.0m in revenues, generating earnings of 1.8p per share and with a doubling of cash at bank of £1.0m.

My View

This group’s shares are already allowing for a substantial improvement in profitability, sufficient to justify an even higher market price.

Its growth in revenues is steady and that should result in greater bottom-line results.

Just two years ago the company’s shares were trading at 125p, since when they have been as low as 20p in December last year.

They touched 46p in early March ahead of announcing its 2023 results.

The shares have held steady since the mid-May AGM Statement, and appeal at around the 37p level.

The FTSE 100 reversed early losses on Monday as investors digested surprise French election results, the new Labour Chancellor’s growth plans, and US jobs data.

The FTSE 100 was up 0.3% at the time of writing after trading firmly in the red in early trade. The French CAC was 0.2% to the good.

“So much for the summer lull. Just as you thought the UK going to the polls was enough drama, political twists and turns in France and the US have put investors in a spin as they try to work out the lay of the land in those geographies,” said Russ Mould, investment director at AJ Bell.

Many feared a far-right victory in the French elections, however, a leaning towards the left yielding a hung parliament sent a wave of relief across markets.

“France has lurched into fresh uncertainty and a parliamentary power grouping of different radical stripes, with the surge in support for the far-left New Popular Front alliance. With the most seats, the aim of the party will be to force a back-track on President Macron’s unpopular reforms aimed at cutting France’s deficit,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

As France joined the UK with a left-leaning government, the new Labour Chancellor Rachel Reeves outlined a plan to boost the UK’s growth including reforming planning rules and setting out building targets.

FTSE 100 housebuilders have been among the best-performing stocks in the run-up to the election, and the gains continued on Friday as the result was confirmed. The reaction was slightly more muted on Monday as investors chose to wait for more concrete plans and held off fresh bets on the sector.

Although housebuilding gains were minor on Monday, there was a robust bid for UK banks and mining companies which helped provide support for the index.

Further afield, markets were pricing in the chance of a US interest rate cut in the near term after downward revisions in US Non-Farm Payrolls prior to June painted a slightly weaker picture of the US economy than first thought. 

The US may also soon provide a source of volatility should the quiet murmurings about Joe Biden discontinuing his bid for a second term in the white house become a reality.

“There were growing calls for Joe Biden to step aside in the 2024 presidential campaign,” Russ Mould said.

“While investors have become more confident about a near-term rate cut from the Federal Reserve, uncertainty over who might run the country for the next four years threatens to become a new worry point for the market. The Democrats are cutting it fine to announce a replacement presidential candidate if Biden does drop out.”