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For investors interested in purchasing shares of UK housebuilders, I believe that Vistry (LSE:VTY) is worth serious consideration. Despite my concerns about the sector overall, I see significant value in this stock at present.
Recently, the company has faced challenges, resulting in a 50% drop in its stock price over the past three months. However, I see these issues as temporary and believe that the steep discount may present a valuable investment opportunity.
What’s Going Wrong?
Vistry’s current challenge is that several of its projects will take longer to complete than initially planned, leading to a revised pre-tax profit forecast of £250 million for 2024, down from an expected £300 million.
This marks the third instance of reported troubles in just three months. Additional problems have arisen due to increased costs in one of its operational divisions.
Importantly, however, Vistry’s difficulties appear to be temporary. Most of the transactions linked to this latest setback are delayed until 2025 rather than being completely canceled.
Furthermore, the company has undergone an independent investigation into its operational issues, which indicates that these concerns are limited to just one division, providing some reassurance to potential investors.
The Investment Thesis
Overall, UK housebuilders share similar challenges and opportunities. A housing shortage keeps sale prices elevated, while inflation poses a risk by increasing operational costs.
Vistry stands out, however. Its strategy of selling to Local Authority Providers, Registered Providers, and the Private Rented Sector helps stabilize revenues by ensuring sales are secured prior to project commencement.
In November, Vistry reaffirmed its commitment to returning £1 billion to investors. While the timeline for this return is uncertain, the recent drop in share price means that the distribution represents over half of the company’s current market capitalization.
Although the latest news might push back this distribution, if it doesn’t completely derail the plan—and Vistry has yet to suggest it will—I believe this FTSE 250 stock could provide a compelling opportunity for significant gains.
The Big Risk
Vistry’s operational issues have recently attracted media attention, and rightly so, as they impact profits directly. However, a more pressing risk that isn’t receiving adequate attention involves a Competition & Markets Authority investigation into potential price collusion among the company and other UK housebuilders.
The outcome of this investigation is highly uncertain, and this lack of clarity makes it difficult for investors to accurately assess the risk involved.
Consequently, investors need to weigh the substantial drop in share price against the uncertainty posed by this investigation when considering Vistry shares.
Here’s What I’m Doing
Recently, I have identified £6 as an attractive entry point for Vistry shares. The latest decline has pushed the stock price below this threshold, which has piqued my interest.
I don’t view the delays in project completions as a significant concern, provided these transactions conclude in 2025. Therefore, I plan to purchase shares in January and encourage other investors to consider doing the same.
