Investing.com -- Vistry Group (LON:VTYV) in a stock exchange filing on Wednesday warned that market conditions remain uncertain as it prepares to release its full-year results for 2024.
The British home builder is expecting a lower profit compared to the previous year, reflecting a challenging environment.
Vistry's adjusted profit before tax is forecast to be around £250 million for the year, a sharp decline from £419.1 million in 2023.
Analysts at RBC (TSX:RY) Capital Markets have pointed out that Vistry Group’s guidance for FY2025, which only indicates year-on-year profit growth, presents a challenging outlook.
Another key uncertainty is the timing, scale, and structure of the previously announced £1 billion shareholder return, which remains unclear.
Given the numerous unknowns and moving variables, RBC analysts believe there are risks to the downside and have maintained their “underperform” rating on Vistry’s shares.
The company’s total completions for the year are expected to rise by about 7%, reaching around 17,200 homes, driven in part by its partnerships business.
Adjusted revenues, which are projected to increase by about 9% to £4.4 billion, reflect this higher volume of completions.
However, despite these gains, Vistry's profitability has been negatively impacted by a series of delays and decisions that limited the potential of certain projects.
These include postponed partner agreements and some land transactions that were no longer considered commercially viable.
Additionally, the company has faced slower-than-expected completions in its open market sales segment, which remains constrained by affordability issues related to rising mortgage costs.
Vistry's net debt has also risen sharply, with the company reporting a net debt position of approximately £180 million at the close of 2024, compared to £88.8 million the previous year.
This increase has been driven by an accumulation of unfinished work and stock, resulting from slower sales and delayed completions.
The company said that while the overall demand in the Partner Funded market remained strong throughout the year, the open market has been under pressure, primarily due to challenges in mortgage affordability.
Vistry has responded with incentives for its open market sales, offering discounts of up to 5% on sales prices in an effort to maintain momentum.
The company has also noted that cost inflation for building materials has remained neutral overall, with some areas seeing price increases balanced by reductions in others.
As far as the near-term outlook is concerned, Vistry remains cautious. Due to the upcoming government spending review and changes to the Affordable Homes Programme, the company acknowledged both partner-funded as well as open market sales markets face uncertainty.
Additionally, Vistry’s confidence in a recovery for open market sales hinges on the resurgence of consumer confidence.
While the company’s forward sales position remains strong, with £4.4 billion in sales booked, the outlook for 2025 is shaped by an environment of continued caution.
The company also faces operational challenges, particularly in its South Division, where cost issues have been identified.
A review of this division has led to adjustments expected to reduce profits by £105 million in 2024, with further impacts in 2025 and beyond.
Despite these setbacks, Vistry has implemented enhanced controls across its operations to prevent similar issues from arising in other divisions.
New leadership has been introduced to stabilize operations in the affected regions, with hopes of returning to normalcy in 2025.
Vistry’s strategy remains focused on its Partnerships business, which the company views as an attractive avenue for growth.
However, it is also adjusting its approach to working capital, with plans to reduce stock and work in progress in 2025.
This is in response to slower open market sales and the need to mitigate the build-up of unsold homes.
“However, key to upside in the share price we believe will be visibility of when the group will return to growth, the speed this can be achieved and the credible ROCE in the medium term,” said analysts at Jefferies in a note.
Shares of the company were up 9.8% at 05:50 ET (10:50 GMT).