I’ve had my eye on FTSE 250 housebuilder Vistry (LSE:VTY) for some time and I finally got around to buying the stock on Monday. Specifically, I bought two shares at £6 each (plus 6p stamp duty).
That’s all the cash I had available at the time and an investment of that size only makes sense through a broker with no commission fees. But I bought the stock because the big obstacle that was stopping me before has gone away.
A stock to buy
Until recently, Vistry – along with six other UK housebuilders – was under investigation from the Competition and Markets Authority (CMA). And that was enough to put me off buying.
That investigation however, looks to have reached its conclusion. Collectively, the companies are set to pay £100m to settle the matter, with Vistry’s contribution £12.8m.
Strictly, the CMA still has to review the offer and decide whether or not to accept it. But my sense is that the matter looks like it’s going to be resolved in the near future.
A £12.8m fine would amount to 3.5% of Vistry’s 2024 operating profits. And with that out of the way, I think there’s a lot to like about the business from a long-term perspective.
A differentiated business
It’s no secret that the UK has a shortage of housing and that’s going to need construction activity sooner or later. But Vistry’s business model makes it different from other housebuilders. Rather than selling houses on the open market, most of the firm’s building has local authorities, housing associations and build-to-rent landlords as partners.
This has two main advantages. The first is that it requires less capital, since Vistry’s partners – rather than the company itself – finance land acquisitions. This makes it easier to return cash to shareholders.
The second is that it reduces cyclicality. Rather than risking completing projects at a time when the market is in a cyclical low, the firm has – almost – guaranteed buyers before it starts building.
Challenges
Over the long term, I think the combination of a cash-generative business in a growing market is a very attractive one. But that doesn’t mean it’ll all be plain sailing from this point on.
Vistry’s partnership model reduces the effect of inflation on build costs. But it doesn’t entirely eliminate it and higher prices for things like lumber are likely to have an impact on profits.
The other big risk is the chance of anything going wrong with public sector housing funding. If this happens, it would likely impact the firm much more than its rivals.
Things look positive on this front for the time being, with the current government announcing support for affordable housing. But there’s a Budget coming up and the UK’s finances are tight.
My newest buy
Realistically, a £12.06 investment in Vistry shares isn’t going to make me rich. But my hope is the share price stays where it is long enough for me to turn this into a much bigger position.
The stock’s been falling recently because costing errors in its South division have been weighing on profits. And this is set to continue into 2026. That might give me the time I’m looking for before expanded support for affordable housing starts to provide a boost. So I’m optimistic for my investment going forward.
