I must say I’m gobsmacked to see Vistry (LSE: VTY) shares trading at levels not seen since 2012. Since that year, the Vistry share price has traded as high as £15 in 2020, £13 in 2021 and even £14 as late as 2024. How much are they changing hands for now? Just over £3 a pop.
It’s hard to get my head around a company in an in-demand sector such as housebuilding falling so far and so quickly.
I’m always on the lookout for a bargain, which is why 80% off Vistry shares have caught my attention today. Is this the kind of chance to buy into a stock that only comes around once every 10 years or more? Or is there more than meets the eye here?
What’s the problem?
On the surface, you might wonder what the problem was. The country’s crying out for new houses to be built. And the government is trying to get construction back to the levels of the 1950s with plenty of housing reforms on the agenda. What’s more, this has been reflected in the revenue figures with Vistry keeping above £3.5bn for each of the last three financial years (it was £2.4bn in 2021).
So what’s the problem? The main issue is inflation which is squeezing margins. Costs are going up – supply costs have been rising since the Ukraine conflict. The government’s added on a bunch of wage costs too. Housebuilders across the country are dealing with making less money off each completion.
Vistry’s suffering perhaps more than any other too. The firm’s pivot to affordable housing and working with local authorities seemed a good idea a few years ago. The reality is that the company has had to use the public market and incentives like paying customers’ stamp duty to keep the sales coming in. Not an ideal situation.
A string of profit warnings has accompanied the slide in share price. A staggering 20% drop in a single day ignominiously hurt earlier this year. The dividend has stopped being paid too.
Poor shape
Vistry looks in poor shape compared to other housebuilders. For example, Taylor Wimpey shares have been struggling too, but that housebuilder has a stronger asset base, lower debt and is still paying a 9% dividend to boot.
Perhaps the brightest spot is that most of the pain might now be in the rear-view mirror. Earnings and revenues are forecast to rise in the years ahead – albeit slowly. Analyst recommendations look optimistic and the dividend could be set to return. A price-to-earnings ratio of just eight looks cheap too.
There’s a lot of risk to investing here. Many a stock that looks cheap after a big dip just goes on to keep dropping – the classic falling knife. For an investor aware of the high-risk profile, it could be worth considering however.
