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I think investors looking to buy shares in UK housebuilders should consider it Vistry (LSE: VTY). While I have reservations about the industry as a whole, to me it looks like the best value on offer right now.
The company has had problems recently and the stock has dropped 50% in the last three months. But I think those problems are temporary and an unusually large discount could turn into an opportunity.
What’s going on?
Vistry’s latest issue is that some of its projects are taking longer than expected. As a result, pre-tax profit for 2024 is now expected to be £250m rather than £300m.
This is the third time the company has reported problems in the last three months. Other issues have been issues regarding higher than expected costs in one of its operating divisions.
Importantly, Vistry’s problems appear to be temporary. Most of the jobs causing the latest embarrassment are being delayed until 2025, rather than being canceled altogether.
In addition, the company had an independent investigation into its operational issues. The result is that these appear to be confined to one sector, which should provide an incentive for investors.
Investment thesis
In particular, UK housebuilders face similar opportunities and challenges. The overall housing shortage keeps prices high while inflation threatens their ability to make the most of it by driving up costs.
Vistry however, is very different. First, its sales model for Local Authority Suppliers, Registered Suppliers, and the Private Hire Sector reduces the cycle by ensuring sales before the start of projects.
In November, the company confirmed its desire to return £1bn to investors. The exact timeline is unclear, but the recent decline in the share price means that is more than half of the company’s current market cap.
Recent news may delay this distribution. But if it doesn’t completely destroy it – and Vistry hasn’t said it will – I think so FTSE 250 the stock can offer a unique opportunity for great reward.
A big risk
Vistry’s operational problems have been in the headlines recently – and rightly so, as these have a real impact on profits. But I think the biggest risk is the one that doesn’t get proper coverage.
The company – along with other UK housebuilders – is being investigated by the Competition & Markets Authority. The subject of a possible conflict of interest is the price.
What the result will be – I think – it is impossible for anyone outside the industry to say. And that’s a problem for investors who want to make an accurate risk assessment.
So investors should think carefully about Vistry shares. The question for them to answer is whether the sharp fall in the share price offsets the uncertainty created by the investigation.
Here’s what I do
A few months ago, I considered £6 an attractive price for Vistry shares. The recent decline sent the stock below that level and that got me interested.
I don’t see the delay in completion as a big problem, as long as this transaction is completed by 2025. As a result, I’m looking to buy the stock in January and I think investors should consider doing the same.
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