Each quarter we get a reshuffle in the FTSE 100 and FTSE 250. Stocks that have been performing poorly in the FTSE 100 get demoted to be replaced by shares outperforming in the FTSE 250. With one due before year’s out, there’s a FTSE 100 company I think I’m going to steer clear of and not get caught up in a value trap.
Recent problems
The stock I’m referring to is Vistry Group (LSE:VTY). I wrote about the company a month ago and flagged that I wasn’t going to invest as I thought the share price could head lower. A month later and it’s dropped 34%. Over a broader one-year time horizon the stock’s down 23%.
A key factor in the past month’s decline was another profit warning from its management team. It had already flagged problems in October, with profit targets cut due to underestimating building costs in southern projects.
Yet the business issued another update earlier this month, citing an additional profit impact of further southern issues adding up to £25m for this year. It then spills over into a negative £20m impact in 2025 and £5m in 2026. This takes the total impact to £165m.
Earlier this week (20 November), it was confirmed that its COO Earl Sibley would be stepping down with immediate effect. I expect further changes at senior management in the coming months. The business will surely seek to draw a line under this issue and start afresh.
Demotion risk
Due to the hit to the share price, the Vistry market-cap has shrunk. It now stands at £2.07bn. So if the reshuffle was right now, it would get demoted. For example, in the FTSE 250 there are currently 54 stocks with a higher market-cap! We’d need to see Vistry shares rally significantly over the coming few weeks in order for it to stay in the FTSE 100.
There will be some impact as and when this happens. For example, FTSE 100 tracker funds will sell Vistry stock and then FTSE 250 tracker funds will buy it. But the size of money in FTSE 100 trackers is much higher than FTSE 250 ones. So it will have a negative impact overall.
Not all doom and gloom
Even though I was correct about the stock last month, I’m not going to sit here and say I’ll never buy it. The homebuilder operates in a sector that I’m positive on for the future. With more interest rate cuts coming next year, I expect mortgage rates to fall and property prices to rise.
Further, the issue with costings is something that can be rectified and tightened with procedures to ensure it doesn’t happen again. It’s not like this is a critical problem that ruins the entire business model.
So although I’m staying away for now, I will be keeping an eye on Vistry Group into the New Year.
