After releasing its half-year report, it’s clear Vistry’s shift in approach in 2023 is starting to pay off, and shareholders are set to see the rewards.
Vistry Group believes they are on course to deliver 18,000 completions this year, significantly ahead of last year’s 16,118 completions. That is a big jump, especially in this market.
The company’s success ultimately lies in its decision to focus on areas of the housing market where they saw the highest demand and some level of support for the end occupier.
Vistry’s ’partnerships’ model involves the group working closely with local authorities to provide housing to both not-for-profit and for-profit local authorities, and the private rented sector. The company will still sell to the consumer market through consumer-facing brands Bovis Homes, Linden Homes and Countryside Homes. The group said it’s targeting 35% of its homes to be sold on the open market.
There is a huge undersupply of social and affordable housing in the UK. By working on a tender basis with local authorities, Vistry is completely sidestepping the problems many buyers face with affordability and higher interest rates to deliver to ready, willing, and able buyers in councils and local authorities.
The private rented sector is particularly interesting area given that more people are renting for longer.
It’s very likely Vistry’s success was manifested long before Keir Starmer entered Number 10 Downing Street, but his victory and subsequent pledges have really fired up the afterburners for Vistry.
In its half year report, Vistry CEO Greg Fitzgerald, said;
“The Group’s growth strategy and greater delivery of affordable housing is well aligned to the new Government’s ambitions to address the country’s housing crisis, and uniquely positions Vistry to play a key role in delivering the Government’s new housing targets.”
You shouldn’t underestimate the tailwinds the Labour government will provide Vistry.
The private housebuilding sector has been slow to build houses and has been nowhere near delivering the number of homes the UK needs. Sure, more traditional homebuilders will play an important part in meeting Labour’s 1.5 million new homes target, but the major opportunity lies in low-cost, affordable homes, many of which will be put out to tender by councils.
In this scenario, Vistry doesn’t have to worry too much about finding buyers for the homes; all they have to do is simply build what they are instructed to. This has helped them achieve their growth in completions and is likely to continue to do so.
In addition, Vistry’s developments provide them with homes for private sale through their brands, such as Bovis Homes, allowing them to pursue greater margins from the houses not allocated to local authorities.
The potential to scale this model is material and is core to Vistry’s investment case.
Vistry’s merit lies not only in its customer base and political events, which play straight into their hands, but also in the valuation the company offers compared to its peers.
With shares at 1,345p, Vistry trades at 15x forward earnings, significantly below Persimmon (19.4x), Barratt Developments (18.3x), and Taylor Wimpey (18.9x). This seems an unfair discount to its peers.
JP Morgan analysts seem to agree and have recently increased its Vistry share price target to 1,550p.