I think investors looking to buy shares in UK housebuilders should consider Vistry (LSE:VTY). While I have reservations about the sector as a whole, it looks to me like the best value on offer right now.
The firm’s had problems recently and the stock’s fallen 50% in the last three months. But I think those difficulties are temporary and the unusually large discount could turn out to be an opportunity.
What’s going wrong?
Vistry’s latest issue is that some of its projects are going to take longer than expected. As a result, pre-tax profits for 2024 are now expected to be £250m rather than £300m.
This is the third time the company’s reported issues in the last three months. The other problems have been with issues around costs being higher than anticipated in one of its operating divisions.
Importantly, Vistry’s problems look temporary. Most of the transactions that account for the latest disappointment are being delayed to 2025, rather than cancelled entirely.
On top of this, the firm’s had an independent investigation into its operating issues. The result is that these seem to be confined to one division, which should give some encouragement to investors..
The investment thesis
Mostly, UK housebuilders face similar opportunities and challenges. A shortage of overall housing keeps sale prices high while inflation threatens their ability to take full advantage by pushing up costs.
Vistry though, is quite unique. First, its model of selling to Local Authority Providers, Registered Providers, and the Private Rented Sector reduces cyclicality by guaranteeing sales before projects start.
In November, the company reaffirmed its ambition to return £1bn to investors. The exact timeline’s unclear, but the latest drop in the share price means that’s over half the firm’s current market-cap.
The latest news might delay this distribution. But if it doesn’t derail it entirely – and Vistry hasn’t yet said it will – I think the FTSE 250 stock could offer a unique opportunity for a huge reward.
The big risk
Vistry’s operational problems have made headlines recently – and rightly so, since these are having a real impact on profits. But I think the big risk is one that isn’t getting the coverage it deserves.
The company – along with the other UK housebuilders – is being investigated by the Competition & Markets Authority. The subject of the investigation’s potential collusion on pricing.
Exactly what the outcome will be is – I think – impossible for anyone outside the industry to say. And that’s a problem for investors looking to make an accurate assessment of the risk.
Investors therefore need to think carefully about Vistry shares. The question they have to answer is whether the huge fall in the share price offsets the uncertainty created by the investigation.
Here’s what I’m doing
Over the last few months, I’ve been looking at £6 as an attractive price for Vistry shares. The latest decline has sent the stock below that level and that’s got me interested.
I don’t see delays to completions as a major issue, as long as these transactions complete in 2025. As a result, I’m looking to buy the stock in January and I think investors should consider doing the same.
