In a stunning turn of events, shares in FTSE 100 housebuilder Vistry plummeted by a staggering 18% on Friday, erasing approximately £500 million from the company’s market value. The sharp decline came on the heels of a second profit warning in just two months, as Vistry revealed that cost overruns on its building projects were far more severe than initially anticipated.
A Deepening Crisis
Last month, Vistry launched an independent review of its operations in its south division after disclosing that it had “understated” total build costs by around 10%. At the time, the company estimated that this would likely reduce profits by a total of £115 million over the next two years, triggering a £1 billion loss in the company’s value.
However, in a shocking revelation on Friday, Vistry announced that it now expects profits to be hit by a total of £165 million, a staggering £50 million more than previously estimated. The company now anticipates profits this year to be approximately £300 million, reflecting the additional impact from issues in the south division and reduced expectations of completions in the year.
Mounting Pressures
Vistry also cautioned that it was expecting to see some “overall pressure” on build cost inflation next year. The company noted that it was assessing the impact of last month’s budget but had already estimated that the increase in employer national insurance contributions, set to rise from next April, would cost it an additional £5 million next year, with the rate increase “also impacting our supply chain”.
“In the open market, we saw some improvement in consumer interest and an uptick in our sales rates following the general election and interest rate cut at the start of August. However, the open market has remained constrained by mortgage affordability and the expectation of future interest rate cuts, in particular for first time buyers in London and the south-east,” a company spokesperson stated in a trading update.
Industry-Wide Challenges
Vistry’s troubles mirror the challenges faced by the broader construction industry. Earlier this week, rival Persimmon warned of the return of building cost inflation and the impact of the increase to employers’ national insurance contributions announced in Labour’s budget last month.
The independent review into Vistry’s south division found that the issues stemmed from insufficient management capability, noncompliant forecasting processes, and poor divisional culture. While the review suggested that the group does have key controls in place and operates them effectively, it noted some areas of regional cultural and process inconsistencies.
Reduced Completions, Uncertain Future
As a result of these challenges, Vistry now expects to complete 17,500 homes this year, 500 fewer than it had previously guided. The company’s struggles highlight the mounting pressures faced by the UK housing market, as rising costs, affordability constraints, and economic uncertainty continue to weigh on the sector.
The fallout from Vistry’s profit warnings and the broader industry challenges have left investors and analysts questioning the future of the UK housing market. As the nation grapples with the aftermath of the pandemic, rising inflation, and shifting political landscapes, the road ahead for housebuilders like Vistry remains uncertain.
With shares in freefall and cost overruns spiraling out of control, Vistry and its peers face an uphill battle to regain investor confidence and navigate the treacherous waters of the post-pandemic housing market. As the industry braces for further challenges, the fate of Vistry and its fellow housebuilders hangs in the balance.
