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The Vistry Group (LSE:VTY) share price is down 35% at the start of trading on Tuesday (8 October). News of a costing error means the stock’s falling, taking other FTSE 100 housebuilders with it.
There’s a lot of risk for shareholders to consider – and these go beyond the latest news. But as I see it, I’m wondering whether this could potentially be one of the best buying opportunities of the decade.
Fear and greed
Vistry’s South Division has miscalculated the costs for nine of its 46 developments. The error is about 10% of the total build cost and it’s going to weigh on earnings until the end of 2026.
According to the company, that’s going to mean pre-tax profits will be lower than expected by £80m this year, £30m in 2025, and £5m in 2026. And that’s a lot for a firm of Vistry’s size.
As a result, it’s probably no surprise the stock’s been falling. But management also made the following announcement, which caught my attention:
‘Notwithstanding the one-off adjustment announced today, we remain committed to… our medium-term target of £800m adjusted operating profit and £1bn of capital distributions to shareholders.’
With the stock down, the company’s market-cap‘s around £3bn. If Vistry can distribute £1bn over the next few years through dividends and share buybacks, that’s a 33% return.
That could make the current share price the sort of opportunity that comes around once in a decade. But there are some real risks for shareholders to consider.
Risks and rewards
As I see it, there are two big risks to consider with Vistry shares. The first is the possibility there might be further unforeseen costs still to come.
The company believes the errors are confined to its South division and are making changes to the management team. But it would be reckless for investors to be entirely certain about this.
The other issue is that Vistry – like a number of UK housebuilders – is being investigated by the Competition and Markets Authority. The concern is over potential anti-competitive behaviour.
It’s difficult for investors to price that risk accurately. Forecasting what the outcome of that investigation will be is extremely difficult and that adds to the future uncertainty.
If these two issues go away though, there’s a lot to like about Vistry. The business has done well to carve out a niche by partnering with local authorities to build homes to rent.
That’s meant the company’s enjoyed relatively strong demand, even as higher interest rates have been weighing on consumer borrowing. So beyond the risks, there’s a lot to like here.
What should investors do?
As I see it, Vistry’s a really tough one at the moment. The risks are very high, but if the company’s really going to return £1bn to shareholders, the current share price is a bargain.
I wouldn’t be willing to make this a big position in my portfolio. But as part of a diversified group of investments, I think there might be an opportunity to consider here.
