Vistry sales improve – should you buy into the boom?
Housebuilder Vistry’s unusual business model has fuelled rapid sales growth amid a sluggish private sales market
Most people in the UK agree that something needs to be done to improve access to housing. With house prices so high that people have to save well into their thirties to get on to the property ladder, some experts estimate that as many as three million homes will need to be built to achieve other countries’ levels of affordability.
The new government has made clear that building more houses will be a priority, with the chancellor outlining major changes to the planning rules, along with a national building target for 1.5 million homes a year for at least the next five years.
Is Vistry a worthwhile investment?
All this is good news for house builders such as Vistry (LSE: VTY). While many firms in the sector have been accused of hoarding land without building on it, Vistry has steadily been moving to a “partnerships” business model. In the past, developers would design a project, get approval and then build the houses, before trying to sell them.
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While this enables the builder to reap the rewards of the investment, it can take a long time, and involves putting a lot of money upfront. By contrast, Vistry gets housing associations and local authorities both to commit to projects before building work starts, and to put up much of the cost.
Such a strategy is not without its drawbacks. It means that Vistry gets less for each house or block of flats that it sells than if it sold them in the usual way. However, it comes with several key benefits. First, getting the buyers to put money down in advance means that Vistry doesn’t have to tie up large amounts of working capital, and the money can instead be invested in other projects. It also makes securing planning approval much easier, as the group can show that its partners are committed to the project.
This has enabled Vistry to grow at an explosive rate, with revenue tripling between 2018 and 2023. This isn’t just a flash in the pan. Vistry has a huge, £5.2 billion backlog of projects in the pipeline, which should keep growing now that the new government sees house building as a priority. Earnings per share have been more variable, but they are now rising consistently.
Despite this, Vistry is still attractively valued, trading at only 12.5 times 2025 earnings and yielding 4.4%. The company has also done well enough to launch a £100 million share-buyback programme, which is due to end in September.
Vistry’s shares have plenty of momentum. According to investment platform AJ Bell, Vistry was one of the best-performing stocks in the FTSE 100 in the first six months of 2024. It has doubled since October, and is still trading above its 50-day and 200-day moving averages. I suggest going long at the current price of 1,317p at £1.50 a share. Put the stop-loss at 717p, which gives you a total downside of £900.
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