Ever since the Rolls-Royce (LSE: RR) share price skyrocketed, I’ve been hunting for another FTSE 100 company that might do the same.
I get it, that’s a stupid thing to do. Few blue-chips will ever match its stellar turnaround. Rolls-Royce shares are up 669% over two years and 149% over 12 months.
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Yet I spotted Rolls-Royce’s potential at exactly the right time, in October 2022. My mistake was to only invest a small chunk of money. Then I banked my 150% gain too soon because I didn’t want to push my luck.
I’m hunting for the next FTSE 100 recovery play
The excitement has died down for now. That’s inevitable, with Rolls-Royce looking expensive at a price-to-earnings ratio of 38.55. That’s more than double today’s FTSE 100 average of 15.4 times.
Its shares were knocked by fears of problems with a part in a Cathay Pacific A350-1000 Rolls-Royce XWB-97 engine. However, the European Union Aviation Safety Agency has suggested this was caused by cleaning failings rather than any structural flaw.
Rolls-Royce has a massive opportunity in building mini-nuclear reactors, and got a boost when Czech Republic’s state utility ČEZ Group chose it as a preferred supplier. The UK government is down to a shortlist of four suppliers and will select two. Will Rolls-Royce be one? There’ll be a fuss if the UK’s flagship engineering company is rejected.
I bought Rolls-Royce shares a month or so ago and this time, I plan to hold for decades. I’m hoping for ample share price growth and dividends in that time, but sadly, nothing like we’ve seen lately.
In my hunt for a bit more excitement, I’ve alighted on FTSE 100 housebuilder Vistry Group (LSE: VTY). Like Rolls-Royce, it’s got itself into a right mess. Can it recover?
The Vistry share price crashed more than a third on 8 October after the board issued a profit warning, admitting it had underestimated build costs in its Southern Division.
A lot cheaper than it was
It said the issue affects just nine out of 300 sites, but that was enough to slash full-year 2024 profit guidance by 20%, or £80m, plus another £30m in 2025 and £5m in 2026.
Vistry is still targeting a net cash position at the end of this year, against net debt of £88.8m in December 2023. It also has a medium-term target of £800m adjusted operating profit, plus £1bn of capital distributions to shareholders.
I’ve made a habit of buying companies after profit warnings lately and the results have been mixed. JD Sports Fashion is on the mend but Diageo continues to flounder while Burberry Group has inflicted a world of pain on my portfolio.
Vistry specialises in affordable homes and social housing, and is expected to benefit from Labour’s housebuilding push. It looks reasonable value trading at 10.22 times earnings. Bargain seekers are hovering, with Vistry shares up 1.83% today.
But my personal experience shows that one mishap often follows another. Turning things around takes time. Rolls-Royce suffered a string of setbacks, including bribery scandals, engine issues and the pandemic, before it finally took wing. We have to question Vistry’s financial competence right now. On those grounds alone, I’ll hunt for my next Rolls-Royce opportunity elsewhere.
