The UK homebuilding sector faced a fresh jolt this week as Vistry Group, one of the country’s largest residential construction firms, issued a stark profit warning that sent its shares tumbling. The gloomy update marked the third time in as many months that Vistry has had to trim its earnings outlook, underscoring the challenges confronting the industry as it grapples with project delays, deal disruptions, and a cloudy economic horizon.
Profit Projections Slashed as Delays Mount
In a troubling sign for investors, Vistry revealed that it now expects its annual adjusted pre-tax profit to come in at a mere £250 million, a sharp downgrade from its previous guidance of roughly £300 million. The company attributed the lowered forecast to a range of factors, including:
- Construction setbacks: Several of Vistry’s developments have fallen behind schedule, with completions pushed into next year.
- Partnership problems: A number of transactions with Vistry’s partners have been postponed until 2025.
- Deal Disappointments: The firm has abandoned some proposed deals due to unappealing commercial terms.
While Vistry expressed optimism that better terms and opportunities would emerge in the coming year, the string of downgrades has rattled investors and cast doubt on the company’s near-term prospects.
Shares Sink to Two-Year Low
News of Vistry’s latest profit warning triggered a swift and severe market reaction, with the company’s shares plummeting 17.5% in early trading to reach 539.5p – their lowest level since October 2022. The sell-off made Vistry the biggest loser on the FTSE 250 index and wiped out a significant chunk of its market value.
Today’s announcement and the financial outcome for FY24 is disappointing. Our top priority for 2025 is to continue building and delivering high quality mixed tenure new homes for our partners and private customers, and to do our part in addressing the country’s acute housing shortage.
Greg Fitzgerald, Vistry Group Chair and Chief Executive
The profit warning also weighed on shares of other major UK homebuilders, with Persimmon and Redrow each shedding over 1% as the news reignited concerns about the health of the broader sector.
Vistry’s Downgrade Trifecta
Vistry’s latest downgrade caps a trying three-month stretch for the FTSE-250 firm formerly known as Bovis Homes. The company first sounded the alarm in October when it revealed it had “understated” project costs across its South division by about 10% – an error that it projected would carve £115 million off profits through 2025.
Just a month later, Vistry warned that the hit to profits would likely be even steeper at around £165 million. It also nudged down its annual adjusted pre-tax profit estimate to £300 million – a figure that has now been cut by a further £50 million in light of the company’s most recent travails.
| Profit Warning | Date | Estimated Profit Hit | Revised Annual Profit Outlook |
|---|---|---|---|
| First | October 2024 | £115 million | £350 million |
| Second | November 2024 | £165 million | £300 million |
| Third | December 2024 | £165 million+ | £250 million |
Rebuilding Trust and Profitability
As Vistry looks to turn the page on a forgettable year, the company faces an uphill climb to regain the confidence of shareholders and put its profit woes in the rearview mirror. Vistry Chair and Chief Executive Greg Fitzgerald acknowledged the trying circumstances but sought to reassure investors that getting the business back on track was the firm’s utmost priority.
We remain committed to our partnership housing strategy and are firmly focused on positioning the business to move forwards and rebuild profitability.
Greg Fitzgerald
However, some analysts remain skeptical that a quick turnaround is in the cards. As Hargreaves Lansdown’s Matt Britzman put it, “Vistry faces a long winter of rebuilding trust, leaving investors with little choice but to mull over their options.” With the homebuilder now anticipating its year-end net debt to swell to around £200 million, it appears to have ample work ahead to shore up its balance sheet and its credibility with the market.
Sector Headwinds Persist
Vistry’s woes come as the UK’s listed homebuilders are on pace to construct the fewest homes for sale in a decade, hamstrung by restrictive planning rules and soaring mortgage costs in the wake of successive interest rate hikes by the Bank of England. While the industry has called on policymakers to pare back regulations to boost housing starts, the government has thus far shown little appetite for a major overhaul.
Until there is greater clarity on the policy and lending rate fronts, the sector may struggle to regain its footing – a dynamic that could lead to further earnings stumbles and stock slides in the months ahead. For Vistry and its peers, the path to firmer financial ground may prove to be a long and winding one.
