As mentioned this is my first investment analysis of a stock so feel free to question and pull apart my arguments. Interested in anything people have to say!
The stock is Vistry Plc (LSE: VTY). At a time when everyone is seemingly losing their minds over AI stocks and IPOs with low to no profits, I bring to you a UK house builder with a forward PE ratio of under 5 and a price to book value of 0.27 (ie you buy £1 of assets for £0.27)…
I appreciate there are more exciting names and industries but often times ‘boring’ stocks are where the money is actually made.
What’s the catch? Well, the stock price has dropped 78% of the past 2 years (albeit has recovered slightly recently). This is due to a number of reasons: meagre UK growth, relatively high interest rates keeping housing unaffordable, margins squeezed due to build inflation, exit of a long time CEO and an accounting scandal with an impact of £165m to top it off.
I won’t gloss over these factors but my investment thesis centres on the belief that these factors are now behind them, priced in or overblown…
Firstly, the UK hasn’t built enough houses to meet demand in any year since the 1970’s and so there is huge demand for housing. The current Labour government has made housebuilding a central policy by reforming the ridiculous planning system that stops anything being built and starting the biggest funding programme in UK history (The Social Affordable Housing Programme ‘SAHP’ delivering £39bn in funding over 10 years).
Vistry currently trades at a steep discount to the other large UK house builders (Persimmon, Taylor Wimpey, Barrat Redrow etc), however, it has a different business model. Vistry pre-sells 65-70% of units to ‘institutional partners’ which means a slightly lower margin on each unit sold but benefits from greater visibility over large projects / lower working capital / better economies of scale thus lowering build inflation compared with competitors.
Vistry, in my opinion, has the most to gain of any UK house builder from these trends and yet is being valued completely differently. Vistry’s partner funded model reduces the companies tied up working capital and debt and allows them to complete more projects, build more units and return more money to shareholders going forwards.
The new CEO, Adam Daniels, comes from the partnership side of the business with a mandate to simplify the business, improve cash flow and working capital in the first half of the year before returning the business to profit in the second half of the year (est £200m profit for the full year).
Vistry (LSE: VTY) currently sits in the FTSE 250.
Market capitalisation - £926m
PE ratio - 4.97 (competitor average of 10+)
Price to book ratio - 0.27 (competitor average of 1+)
The companies H1 trading statement highlights the success of current measures being taken to cut costs and improve cash generation whilst maintaining the target for £200m PBT for FY26. Also worth noting is the massive forward order book of £3.9bn, this represents secured, future sales that are under contract but not yet recognised as revenue.
Overall, it is clear that Vistry is in a turnaround year, with short term reduction in debt and cash generation measures reducing profit in H1. However, I believe these actions put the company on solid foundations to build for future growth (pardon the pun). A massive order book of £3.9bn, the governments push for more house building and strong PE / book value valuation metrics lead me to believe the upside is worth the risk.
For transparency, I own Vistry shares.