Vistry Group Shares Plummet Amid Profit Guidance Cut
The stock of UK homebuilder Vistry Group took a nosedive, tumbling over 14% in response to the company slashing its 2024 profit forecast by nearly 15%. A comprehensive review uncovered troubling issues within the Southern Region house building division, prompting Vistry to revise its profit before tax estimate to £300 million, down from the initial £350 million projection.
Deeper operational problems, beyond what was anticipated, surfaced in the Southern Region, highlighting deficiencies in divisional management, inaccurate forecasting, and an unsustainable work culture. These challenges, concentrated in five major ongoing projects, forced Vistry to scale back its projected completions from over 18,000 units to approximately 17,500 for the fiscal year.
The woes primarily plague Vistry’s housebuilding activities, with the partnership sector also experiencing a slowdown. The organization’s pivot towards a partnership-oriented business model has exacerbated the existing pressures. The aftermath of the operational issues is expected to haunt Vistry beyond the current fiscal year, with projected financial impacts of £25 million in 2024, £20 million in 2025, and a lingering £5 million in 2026, totaling £165 million to rectify the Southern Region troubles.
Capital and cost expectations have also been revised cautiously by Vistry. Previously targeting a net cash position by year-end, the company now foresees net debt below last year’s £88.8 million, but not a positive net cash scenario. Plans to return £1 billion to shareholders might face delays due to prevailing operational setbacks, although the ongoing £130 million share buyback remains on schedule.
Additionally, a review is underway to evaluate potential liabilities arising from new building safety regulations, including the impact of second staircase mandates on certain projects. While this reassessment is unlikely to significantly affect cash flow, it adds another layer of complexity for Vistry in the foreseeable future.
Despite facing challenges, there were positive market dynamics reported by Vistry, such as a 42% surge in weekly sales rates year-to-date, showcasing resilient consumer demand. However, mortgage affordability challenges persist, prompting the company to offer buyer incentives of up to 5% of home prices to stimulate sales. Varied demand from Registered Providers was noted, with strong interest in the Midlands and North, but lukewarm response in London and the South East.
Looking ahead, Vistry anticipates modest cost pressures on build expenses in 2025. The recent Budget’s National Insurance contribution hike is expected to dent the company’s profits by around £5 million, intensifying the strain amidst a challenging operational environment.
In light of these developments, Vistry Group faces a complex landscape ahead, navigating operational hurdles while striving to maintain financial stability and shareholder confidence.
