Vistry shares tumble after rise in build cost errors

Vistry’s miscalculation as to how much it would cost to build hundreds of homes in the south of England was much worse than it had first thought, sending the shares tumbling once again on Friday.
To the surprise of the stock market, Vistry admitted last month that its southern division, which encompasses Kent, Sussex and Hampshire, had underestimated its build costs at nine sites by about £115 million. A deeper investigation over the past few weeks has revealed, however, that the error is closer to £165 million.
As a consequence Vistry’s adjusted pre-tax profits this year will be about £300 million. Before last month’s warning, bosses had hoped to deliver profits of about £430 million.
Vistry also warned that, owing to the distraction of the troubles down south and weaker demand from housing associations and big landlords, it will build 500 fewer homes than expected in 2024 while build costs are going up and it is reviewing its cladding bill.
On top of that, the ambitious target of doubling profits and returning £1 billion to shareholders over the medium term, which drew in investors and made Vistry the darling of the sector, has been pushed back.
“Multi-faceted bad news,” was how one industry insider described Friday’s update. “It will have spooked investors because it reads as cracks appearing everywhere.”
Vistry shares fell a further 154p, or 17.6 per cent, to 719½p on Friday morning, meaning that they have almost halved in value in the past five weeks. A conference call with stock market analysts did little to halt the slide: when Greg Fitzgerald, Vistry’s chief executive and executive chairman, stepped up at 8.35am to address the problem the shares were trading at 752p; by the time he had finished an hour or so later, they were below 700p, albeit only briefly.
Although it can trace its roots back to the 1800s, Vistry as it is today was formed by the merger of Bovis Homes and the housebuilding division of Galliford Try back in 2020.
Although it still builds some houses to sell on the open market, the bulk of its work these days is building flats and houses for “partners” such as local authorities, housing associations and institutional landlords.
It made that pivot this time last year. In theory, partnerships are a more stable business because the partners buy the homes in advance, giving Vistry more certainty. It had been working too, given that Vistry was building more houses and making more money than its traditional rivals.
An independent review commissioned by the company over the past month found, however, that “the pressure being felt from organisational change [was] a fundamental driver underlying the issues in the south division”.
Vistry has said that the £165 million understatement of build costs could be put down to “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture”.
In terms of culture, industry insiders have pointed out that building houses for sale on the open market is very different from building affordable homes for partners, which is more akin to being a contractor.
Because housebuilders work with much fatter margins— 25 per cent or so when the market is good — than contractors there is a consensus that contractors are better at keeping on top of the costs. Some think Vistry’s site teams will have found the transition difficult.
Rival bosses have been sympathetic to Vistry’s plight, noting that unexpected cost increases are not uncommon in the sector, but whereas traditional builders can often be bailed out by rising house prices, Vistry’s fixed-priced model means it cannot.
Fitzgerald, 60, emphasised that the problems were confined to the southern division and were not “symptomatic of the wider business”. One of the problems, he believes, with the set-up of the business is that there were “too many layers” of management following the acquisitions of Galliford and Countryside over the past few years.
“Some of that has already been taken away and we’re currently reviewing what else we can do to get me closer to the coal face,” he said.
Fitzgerald has previously come in for criticism, given his dual role as both executive chairman and chief executive, an unusual arrangement that flouts the UK corporate governance code. “The governance, which people looked through when this was all going well, will come into question now,” one senior industry executive said.