23rd Oct 2023 10:07
(Alliance News) - Vistry Group PLC's trading update on Monday spoke to the troubled state of the housebuilding sector but also the resilience of the company's core business, according to Edison Group Director Andy Murphy.
Murphy noted that Vistry has found itself "less affected" by recent turbulence in the residential property sector as the decline in open market privates sales does not impact the firm's core offering since its pivot towards affordable housing.
"Vistry Group has carved out a niche for itself in the residential property sector, and it has proven something of a safe harbour," the Edison director said.
Last month, the Kent-based housebuilder announced it was changing its strategy to focus solely on building affordable homes through its "high return" Partnerships division, to help address the UK's "chronic shortage of affordable mixed tenure housing".
On Monday, it said it will cut up to 200 jobs and slim its number of regional units to 27 from 32 as part of this shift in strategy. The firm expects to deliver around GBP25 million of annualised cost savings as a result of the restructuring.
Russ Mould, investment director at AJ Bell, said that Vistry's Partnerships business should provide it with a "more resilient" revenue steam amid a "pronounced" housing market downturn, but warned that there were "limits" to the protection this could provide.
"The lack of a seasonal pickup in its private housing business at least demonstrates the wisdom of the decision to retrench from this market, but it is still a shock to learn it is performing below even the group's own modest expectations," Mould said.
Vistry reported on Monday that its average weekly sales rate since July 1 has been 0.60 per site, down slightly from 0.64 a year before. Its forward order book totals GBP4.3 billion, with all private units for 2023 already forward sold.
Looking forward, Vistry expects adjusted pretax profit in 2023 of GBP450 million, excluding the impact of transitioning the Housebuilding business to Partnerships, up from GBP418.4 million in adjusted profit in 2022.
"As previously described, this impact is created by the re-evaluation of the full-life margin of the group's Housebuilding sites to reflect the increased pre-sale elements and the associated discount in price," Vistry explained.
Vistry said it estimates the final 2023 impact of the reduction in full-life margins of its Housebuilding sites to be in the region of GBP40 million. As a result, its targeted adjusted pretax profit for 2023, including this impact, is GBP410 million.
Steve Clayton, head of equity funds at Hargreaves Lansdown, argued that Vistry's GBP40 million charge was the "first sign" that market weakness is threatening to begin impacting the balance sheet of housebuilders.
Meanwhile, AJ Bell's Mould cautioned that the "gloomy" update could be a precursor to an eventual profit warning.
Shares in Vistry were down 5.5% at 685.07 pence on Monday morning in London. The stock is down 11% over the past six months.
By Heather Rydings, Alliance News senior economics reporter
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