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I think investors looking to buy UK housebuilder shares should consider Vistry (LSE: VTY). While I have reservations about the sector as a whole, it seems to me to be the best value on offer at the moment.
The company has been struggling recently and shares have fallen 50% in the last three months. But I think those difficulties are temporary and the unusually large discount could turn into an opportunity.
What's happening?
Vistry's latest problem is that some of his projects are going to take longer than expected. As a result, pre-tax profits for 2024 are now expected to be £250 million instead of £300 million.
This is the third time the company has reported problems in the last three months. The other issues have been issues related to higher-than-anticipated costs at one of its operating divisions.
Importantly, Vistry's problems appear temporary. Most of the transactions that explain the latest disappointment will be delayed until 2025, rather than canceled entirely.
In addition to this, the company conducted an independent investigation into its operational problems. The result is that these appear to be confined to a single division, which should somewhat encourage investors.
The investment thesis.
For the most part, UK housebuilders face similar opportunities and challenges. A general housing shortage keeps sales prices high, while inflation threatens your ability to get the most out of them by driving up costs.
Vistry, however, is quite unique. Firstly, its sales model to local authority suppliers, registered suppliers and the private rented sector reduces cyclicality by guaranteeing sales before projects begin.
In November, the company reaffirmed its ambition to return £1 billion to investors. The exact timeline is unclear, but the latest drop in share price means it's more than half of the company's current market capitalization.
The latest news could delay this distribution. But if he doesn't derail it completely – and Vistry hasn't yet said he will – I think FTSE 250 stocks could offer a unique opportunity for a big reward.
The great risk
Vistry's operational problems have been making headlines lately, and rightly so, as they have a real impact on profits. But I think the big risk is not getting the coverage you deserve.
The company, along with other UK housebuilders, is being investigated by the Competition and Markets Authority. The issue of possible collusion in pricing research.
I think it's impossible to say exactly what the outcome will be for anyone outside the industry. And that's a problem for investors looking to make an accurate assessment of risk.
Therefore, investors should think carefully about Vistry stock. The question they must answer is whether the huge drop in the stock price offsets the uncertainty created by the investigation.
This is what I'm doing
Over the past few months I have been considering £6 as an attractive price for Vistry shares. The latest drop has sent the stock below that level and that interests me.
I don't see completion delays as a major issue, as long as these transactions are completed in 2025. As a result, I'm thinking about buying the stock in January and think investors should consider doing the same.
