Weak construction rates in response to soaring homes demand has caused property prices to explode during the past decade. And it looks like the shortfall in housing availability has been worsened by the Covid-19 crisis.
Official data shows that the number of homes starts in England slumped 38% year on year between April 1 and September 30 as Covid-19 lockdowns bit. This was the lowest number of starts for seven years.
Another terrific trading update!
All this bodes well for construction-focused UK shares over the short-to-medium term at least. And it feeds through to predictions that, despite the economic downturn, property prices will remain strong in 2021. Take property services provider Jackson-Stops for example. It reckons that low stock levels will help average home prices edge at least 2% higher next year. It predicts that they will rise between 3% and 4% should the recent Stamp Duty holiday be extended beyond the spring.
It’s no wonder, then, that many City analysts reckon profits at many London-quoted homebuilders. The forecasts for Vistry Group (LSE: VTY) is a perfect example of this. Broker consensus suggests that annual earnings here will climb 122% during 2021. And fresh commentary from the FTSE 250 firm today illustrates why the number crunchers are so upbeat.
Vistry declared in November that profits in 2020 would hit the upper end of its expectations (at £130m to £140m). And it built on this recent good news with fresh trading details released on Wednesday. The UK share was trading more than 6% higher from Tuesday’s close as a result.
Vistry said that it expects to have net debt of no more than £40m at the end of December. It even touted the possibility of having a small net cash position at the close of 2020.
The company said that “this has been driven by continued strong trading and low cancellations, good cash management at an individual business level, and the ongoing benefits from the successful combination and integration of the enlarged business.” Vistry was created following the acquisition of Linden Homes by Bovis Homes a year ago.
UK share resurrects dividends for 2020
The news bodes particularly well for income-hungry UK share investors. Vistry said last month that it intended to resume dividend payments next November with an interim dividend for 2021. Resilient trading since then means the builder now plans to accelerate these plans and to pay a “modest” final dividend for 2020.
City analysts reckon Vistry will pay a total 35.5p per share dividend next year. This yields a chunky 3.9%. However, one can expect broker estimates to receive a sizeable shot in the arm following today’s news. No wonder its price has soared in value on Wednesday, then. I reckon this UK share is a brilliant pick today and I’d buy it. And a low price-to-earnings (P/E) ratio of 8 times for 2021 sweetens its appeal.
Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.