Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

January 12, 2024

VTY | Economics – Weather impact hits construction output | Fortnight ahead

Company news

Vistry Group (VTY, 968p, £3,340m mkt cap)

Formed from the mergers of Bovis Homes and housebuilding and partnerships divisions of Galliford Try (GFRD) and Countryside Partnerships, undergoing transformation into bulk ‘pre-sales’ model to external private and affordable homes owners. FY (Dec) trading update.

Guidance: “Group financial performance for FY 23 ahead of guidance with adjusted PBT expected to be in-line with prior year (FY 22, £418m; consensus, £410m). YE net debt, c. £90m (FY 22, £118m net cash), “in-line with guidance”. Ave net debt, c. £450m, in-line w previous guidance.

Trading: Completions -5.4% proforma, 16,124. Former Partnerships business +3.3%, 9,422; former Housebuilding business -15%, 6,702. Sales rate, 0.96 (0.71) “with the sales rate for our differentiated Partnerships business expected to be higher than that for traditional housebuilding”. Prices -4.1%, c. £277k (mainly mix effect), private incentives remain at c. 5%; rev -10%, £4.0bn. “In the pre-sale market, working with our partners, we continued to see good demand for affordable housing from registered providers (RPs) and local authorities (LAs).  Demand from private rental sector (PRS) investors improved in the second half, with a notable increase in Q4. Demand in the open market has remained suppressed throughout the year reflecting the higher interest rate environment and inflationary cost pressures on household income. The group has proactively managed cost base with our key supply chain partners, resulting in material and labour cost reductions in H2. We have remained active in the land market despite market uncertainty in FY23, securing 13,067 (8,547) plots, demonstrating our commitment to our growth objectives and medium-term targets”.

Outlook: Forward sales +12.4%, £4.5bn, “positioning us well to deliver a step-up in total completions in FY 24. We are seeing good levels of demand for homes from RPs and LAs, with an increasing demand profile from the PRS sector. The transition of our former Housebuilding landbank to our Partnerships model is making good progress, as we sign new and exciting development opportunities with our partners.  We have been awarded an additional £20m of affordable housing grant funding from Homes England, taking our total funding to £170m. The easing of mortgage rates in recent weeks is encouraging and we are optimistic that this will help stimulate [private] demand in FY 24.  We believe the country’s housing crisis will be at the top of the political agenda over the coming months and that Government will need to allocate more funding towards housing.  As the leading Partnerships business with strong growth ambitions, Vistry is extremely well positioned to play its part in increasing the delivery of much needed affordable homes across the country. We are comfortable that consensus estimates reflect the [previously] revised margins for the business and that there are no further adjustments of this nature required”. FY results, 14 March.

Economic data

Construction output fell by an estimated 0.6% in the three months to November 2023, with new work declining 3.6%, almost offset by a 3.8% increase in repair and maintenance, ONS. Output decreased 0.2% in volume terms in November; this follows an upwardly revised decrease of 0.4% in October 2023, with the monthly value in level terms in November 2023 at £15,571m. The monthly decline came solely from a 2.0% decrease in new work, as repair and maintenance increased by 2.1%. At the sector level, three out of the nine sectors saw a fall in November 2023, with the main contributors to the monthly decrease seen in private new housing and infrastructure new work, which decreased 3.9% and 2.0%, respectively. According to the ONS, anecdotal evidence suggested effects of adverse weather in November 2023, led to delays in planned work. Next release, 15 February. The data was a contributing factor behind today’s GDP statistics, which showed a 0.3% M/M increase, following the same percentage decline in October and narrowly beating consensus of 0.3%, reflecting growth of 0.4% and 0.3% respectively in the other two constituents, Services and Production.

Fortnight ahead

Construction and Property Company and Economic News

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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