Vistry shares fall 22% as housebuilder declares profit warning

Vistry Group Shares slumped on Tuesday and the company warned of a £115m hit to its profits due to higher-than-projected construction costs.

One of Britain’s largest housebuilders saw its shares fall 22.6 percent to 985.5 pence in early afternoon, making it the biggest faller on the FTSE 250 index, although it remains just above its value at the beginning of January.

It revealed that it had “recently become aware” that total lifetime cost estimates for nine developments in its southern division, including some large-scale projects, had been underestimated by around 10 per cent.

As a result, the company expects its adjusted pre-tax profits for the current financial year to be around £80 million lower than forecast by £350 million.

And over the next two years, it predicts profits will take a hit of £20m and £5m respectively.

Vistry said it had revamped its management team and launched an independent review to “fully determine the causes” behind the problem, which it believes is limited to the southern division.

The Kent-based group, formerly known as Bovis Homes, has 300 developments in total and still plans to build more than 18,000 units this year, up from just over 16,100 in 2023.

During the first six months of 2024, Vistry completed around 7,750 homes, up 8 percent year-on-year, thanks to good demand in its partner-funded markets.

Adjusted revenue also rose by almost £200 million to around £2 billion, while reported operating profits rose 38 per cent to £167.2 million.

Following the action, the company unveiled a £130 million share buyback plan, which it hopes to conclude before May next year.

Vistry announced the merger of its housebuilding and partnership divisions last year, saying the move would help it focus on meeting the shortage of affordable and mixed-tenure properties in the UK.

Two months later, it struck an £819 million deal with housing providers Sage Homes and Leaf Living to deliver almost 3,000 new homes.

Since then further deals have been signed with private equity giant Blackstone and investment partner Regis Group to build 1,750 properties.

Vistry told investors on Tuesday that it was “committed to delivering a strong increase in high-quality mixed tenure housing”, alongside its medium-term targets of £800m in adjusted operating profits and £1bn in distributions through the shareholders.

The British property sector is showing significant signs of recovery amid expectations of further interest rate cuts by the Bank of England and easing of planning restrictions.

UK house prices rose 0.3 per cent to £293,399 in September, the third consecutive month of growth and just £108 below the record hit in June 2022, according to the latest House Price Index from Halifax.

Anthony Codling of RBC Capital Markets said: “Investors will be looking to understand how the issue arose, how it is being addressed and why and how Vistry is confident the issue is limited to one division.”