Vistry’s (LSE: VTY) Chief Operating Officer recently described current business conditions as “bloody hard work”. This wouldn’t usually be taken as a good sign… but in this case, it is, because the FTSE 250 firm is finding it hard to keep up with high demand.
Vistry (previously known as Bovis Homes) has had a strong start to the year, following on from a difficult 2020. Pre-tax profits have increased to £156.2m, compared to a loss of £12.2m over the same period last year, and new homes built are up by 5% on even 2019 figures. What’s more, the average selling price for new Vistry homes has hit £351,000, an increase of almost £20,000 on last year. The firm has also reported that it will pay an interim dividend of 20p per share, after an announcement of no dividend at this stage last year. Vistry shares shot up after the announcement, and they are sitting at 1,176.5p as I write, almost double their share price in September 2020.
Vistry’s success partly reflects a buoyant property market. August figures from Halifax’s House Price Index show that house prices have increased 7.1% over the year, and rival FTSE 250 house builders Redrow and Barratt are also reporting surging profits. Homebuilders’ fortunes are very much tied to the success of the property market, and I have to wonder whether this strong performance can continue. Firstly, demand for homes has been buoyed this year by the Stamp Duty holiday, which draws to a close at the end of this month. Secondly, eligibility for the Help to Buy scheme was tightened this year, potentially reducing demand for new homes. But Vistry’s interim results suggest that future demand will remain strong despite these two challenges, with sustained demand for houses that are due to complete at the end of Q4, months after these two effects will have started to impact the market.
But at the same time, I am conscious that a surging property market carries its own risks. For example, there are concerns among homebuilders that the cost of finishing these new homes could start to outpace property prices. A period of high demand and competition from rivals means that stocks of building materials are low, leaving shortages a risk. However, Vistry reports being well prepared: it is planning which materials will arrive on site between six and 12 months in advance, up from the standard three-month time horizon. Labour shortages are also a potential problem, and homebuilders are reporting double trouble: Covid-19 isolation rules mean more workers are off sick, and Brexit has made securing skilled sub-contractors from Europe more challenging.
Overall, its strong demand to the end of the year and forward planning with materials makes the FTSE 250 stock look like an attractive prospect to me. I will be keeping an eye out for evidence of slowing house price growth or further news of labour and materials shortages, but for now Vistry shares could be my way of gaining exposure to a rising property market without buying a new place myself.
