Intro
Hello again. No, this is not an article from 2024. We are once again discussing Vistry following yet another massive share drop off. And I once again feel like the lone cheerleader for this troubled UK builder (Even the yanks have left me now). Rock bottom sentiment and dozens of wounded American investors dumping their shares at 14 year lows. But I am once again asking myself the question, what else can realistically go wrong? Yes, I asked myself this question when I first bought Vistry over a year ago now and have since found out a few more things I was not expecting. But its getting to the point now where Vistry have nearly exhausted every possible blunder and even marginal performance increases could lead to an aggressive rerate. We also have a year ahead of potential catalysts that could break the cycle. In this article we will discuss the immediate outcome of their recent results and how things are likely to play out going forward.
‘I thought you guys hated me?’
I’m going to start with Greg. Especially amongst the UK crowd, Greg Fitzgerald has always been a bit of a divisive figure and his hybrid CEO-Chairman role made a lot of UK folks turn their nose up at him. But the news of his departure, first as CEO, then as chairman in a years time obviously hasn’t helped a business that is in the middle of uncertain times. To be clear, Greg said on the earnings call that this has been planned for a long time and this is simply a case of him wanting to enjoy his time with his wife and not worry about running a business anymore. I understand why some are concerned. If nothing else, Greg is a figure who very much sets the tone for the company and has made them embrace the partnership model that got everyone excited in the first place - the promise of capital light, recession proof returns. But in reality the road has been a lot more bumpy.
But, the year ahead should be a very important one for the partnership model with bidding from partners for funding for affordable home projects scheduled to begin at some point midway through 2026. This is why I am not entirely surprised Greg is staying on for another year to help guide the company through these important developments. Of course, CEO changes bring uncertainty and the worst case scenario for investors is obviously a walking back of the partnership model and a return to traditional building. All the communication from the company has been that they are committed to partnerships and to be honest, even under a new CEO, I can’t see how this would change, especially given the source of this drop was the news that Vistry have cut prices on their prebuilt homes to increase volumes on sales. Builders broadly are struggling to shift homes, so I can’t see how a new CEO would be able to sell this strategy, especially during this downturn for builders. Speaking of, lets talk about those price cuts and forward guidance.
Volume Up, Margins Down
Here are a few quotes from the earnings release
‘Alongside building momentum into the Spring selling season, the Group’s enhanced focus on driving Open Market sales, will support a reduction in the levels of inventory and improved cash generation in 2026.’
‘The Group has started the year well with its overall year-to-date sales rate at 1.42 sales per site per week (25 March 2025: 0.59). This includes Open Market sales rates over 40% ahead of the same period last year, primarily reflecting the success of the targeted pricing initiatives’
‘The Group expects to deliver good year-on-year revenue and volume growth, and an improvement in adjusted profit before tax in 2026, albeit with a lower overall margin reflecting the incentives offered during the current sales initiative.’
The building sector is obviously in a tough spot with the industry as a whole struggling. Vistry have made the choice to sell on the open market at a discount, to increase sales on lower volume, and they have started this initiative BEFORE the spring selling cycle which is very interesting. The main attraction to the business is obviously the partnership model but this does not eliminate the need to sell on the open market. Greg said in the earnings call that he has been personally calling area managers to discuss this strategy and any reluctance leads to uncomfortable follow up meetings. He also clarified that in areas where selling rates are as expected, discounts have not been enforced. These discounts are also not consistent area to area with some offering more discounts than others. Vistry management repeatedly mentioned in their call that they are building cheaper than any other UK builders which is what is allowing them to push this sales initiative. If the macro situation does have a nasty sting in the tail, then at least this early initiative will get ahead of this.
Perhaps just to clarify for those who are unclear, Vistry building on land they do not own in partnership with organisations like Local Authorities and Councils means that they significantly reduce their costs and increase their ROIC (I can hear to boos). But, they still have to sell homes on these development in the open market. They are essentially building on behalf of the partner in need of homes and in exchange get free use of their land to build homes they can sell for profit. The story is not as simple as, partnership building is the silver bullet. If the market is weak, Vistry is still going to suffer as demands for their homes will drop. But crucially, they will not suffer as much as the more traditional capital intensive builders. Vistry is also placing more focus on pre-sold developments so that they do not have to sell on the open market. This strategy is not without its risks but also carries significant benefits when coupled with the other strengths of the business. For example, for hired workers such as bricklayers, Vistry being able to give them the visibility of a project needing to be completed rather than stop start building is a significant advantage as it helps with day rates as builders are willing to trade cost for regular work.
Affordable Homes, Affordable Growth
The big drive that is supporting Vistry’s ambitions is the shortage of homes in the UK, specifically affordable ones, and the Government’s commitment to address this shortage. Vistry back in September secured a further £50 Million of funding to add to the £200 Million they have already received to support this. Why is this happening?
As a brief refresher, building homes in the UK is annoying. You can’t just buy land and build. You need to go through painful planning processes and in some cases. completely in vain. Addressing the housing shortage through traditional builders will be extremely challenging in most people’s minds and in mine, impossible. The attraction of partnership building to the government is it eliminates many of the barriers that they would otherwise face. Land where council owned homes already exist can be redeveloped into housing and flats that effectively utilise the land and increase the homes in the area.
Vistry are well positioned due to their extensive relationships with various partners to effectively build homes without putting financial strain on these organisations. Local authorities and councils simply do not have the money to develop the land they own through traditional means and are therefore reliant on Vistry to deliver new homes. If the government wants to build homes at a faster pace, the partnership model will be crucial to that drive. This speed also feeds into Vistry having its own timber frame building segment which allows it to build homes significantly faster, but more expensive than traditional means. Timber frame homes are not favoured by competition who have to deal with stop start building and therefore where these increased costs are useless as speed is not a priority. Vistry however, who are selling themselves as the best fit to quickly solve the housing crisis across the country and aiming to pre sell homes, clearly will see a lot more advantages in being able to build developments quickly. This example again illustrates the unique positioning of the business.
I would advise those interested in the company to watch the earnings call for the FY results which has a lot of very helpful information to help understand the model and how they drive growth in the industry through the partnerships they have. Lets quickly go over some things that were mentioned in the call that help contextualise the results.
Earnings Call Learnings
Government Funding - There were a few things mentioned in the call which I found very interesting. The most important to me was the clarification around further grant funding. As mentioned earlier, Vistry have now confirmed they will have received over £250 Million from the government in funding for affordable homes, the maximum allowed as a strategic partner. But management clarified that they are bidding in secure ‘Strategic Plus Partner’ status which would raise the ceiling to £700 million over the course of the next agreement (2026-36). Vistry currently have a market cap of around £1.3 Billion meaning they would receive over half of their market cap in a grant for the government over the next 10 years.
Do you remember the ECIP bank stocks from a few years ago? For those of you not familiar, you can read about the background here. Long story short, the US government basically gave small community banks serving black communities free money which they could then basically use how they pleased. Now, Vistry are not getting their entire market cap in cash here like some of those banks were, but in a similar way to how the ECIP banks could leverage this investment into more returns, a similar dynamic is in play for Vistry. In the same way that ECIP recipients could acquire other ECIP banks, Vistry is also able to benefit from its partners also bidding for funding from the government. This means that there will be projects where Vistry are the recipients of funding and others where it’s partners received this funding. Vistry securing Strategic Partner Plus status would be massive for the business but even this significant increase would understate their actual grant access, due to the partnership model. In terms of the likelihood of this happening, I think Vistry are very well positioned to receive this, once again, due to their model and their ability to build quickly. Management have also mentioned capitalising Linden First so they can begin applying for grant funding unlocking another route for Vistry to obtain partner funding.
ROCE Target
Management are still maintaining their 40% ROCE target but we are currently only at 13.9%. Yes, the market is subdued, but this is not simply a gap made up in volume or a booming house market. They are clear that they need to make significant progress on their WIP and Capital Employed numbers to get to this stage. Yes, grant funding will be a big help. They discussed that under the current proposals, direct grants could provide 40% of site acquisition costs and 35% at the start on site. This is obviously a huge lever to pull on and once again significantly drops the capital requirements of the business for the affordable homes segment. But WIP is something that they need to address. It was mentioned on the call that their high WIP number is quite significantly influenced by London building where developments are mostly blocks of flats (apartment buildings). As you cannot build some of the development and sell them, like you can with homes, apartment buildings need to be fully completed before sales can commence. This means that in London, capital is more tied up than Vistry would like. This stickiness is something they are hoping to address and broadly speaking, the company are focussed on decreasing their capital employed.
I am hoping that we get more clarity on the steps being made to address this in future but it was explicitly mentioned as a focus. Management crucially have not lowered their guidance on their targets for returns on capital.
Conclusion
I think I have dragged this on long enough. But I will just repeat that I would advise you to listen to the call as there is a lot of information packed in. My feeling is that Vistry has fallen flat on its face enough times. The company are not blameless over the last few years and have clearly made mistakes, but at the current valuation, bears are running out of runway before it comes too cheap to not take off. If you compare Vistry to other builders, nobody else is exactly flying high.
The company is trading at around 6.5x 2025 EPS. They provided 1 in 7 affordable homes built in the UK last year with around a 15% market share. Over the current 5 year programme, Vistry got about £50 million a year. This would increase to £70 million a year if they are able to secure upgraded partner status. But, you must remember that Vistry also can take advantage of funding from partners. London alone is due to receive 11.7 Billion of this grant over the next 10 years. If Vistry takes its 15% market share of this grant, it would mean £1,755,000,000 over the course of the next 10 years, or over £175 million a year. Add this to their £70 Million and Vistry gets £245 Million to support its business each year. Now this is by no means perfect maths as Vistry will no doubt use their own funding in many London sites, but it goes to illustrate how even the £700 million grant is understated due to the partnership model. I will say that I do have concerns with regards to how prepared the system is around Vistry to scale up building on this scale. But, if anyone is going to take advantage out of the house builders, its Vistry.
The current homebuilder market is not in a great place, but there are clear catalysts for affordable homes and Vistry is helping to deliver on these targets. Last year, there was the most activity in affordable homes delivery from local authorities for 40 years. With £36 Billion in the pipeline over the next 10 years, I can only see this growing. Still, remain cautious. With macro uncertainty, things can still go wrong and push back the date when all the wheels really start turning. But frankly I think the market reaction is unjustified and has completely ignored the coming catalysts. At 400p, risk reward looks very compelling.
Thank you for reading. If you have any thoughts or questions, feel free to reach out in the comments or on twitter which is in my Bio.
Thanks for the writeup. Do have any insight into how the land creditor vendor financing works? Is Vistry on the hook for these commitments if the planning application falls through? Do you know if land creditors is all through their partnership builds or do they also use it for speculative land purchases?
Disc. I am long.
Thanks Javen, good summary. Just a point of clarification on Greg's departure, I believe he will stop being chairman first then CEO. The timings of which are standing down as chairman in May and up to a year later for CEO. After which up to a year of consulting to the firm.
He mentioned to spend more time with his wife. But he also said it was because she is older than him. I managed to find her on Companies House because she acted as a director on his consulting firm. For interest he is 61 and she is 75. Years matter a lot when you get up to that age so it makes sense to me that something could have happened that made them reassess how much time hes spending working