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Just before Rachel Reeves stood up in the House of Commons today (11 June) to deliver the government’s spending review, the share price of one FTSE 250 stock, Vistry (LSE:VTY), was already up 7.9%.
By the time her speech had been delivered, it had risen another percentage point.
The fact that newspapers were briefed overnight took away some of the surprise. But nonetheless, investors reacted positively to the promise of additional spending on affordable housing.
What’s going on?
Vistry, which has a different business model to its peers, could be one of the biggest winners from the Chancellor’s promise of £39bn of additional grant funding for the social housing sector from 2026-2036.
The majority of Vistry’s homes are considered to be ‘affordable’ and are sold to local authorities, registered housing providers, and government agencies. In contrast to other listed housebuilders, a small proportion of its revenue — approximately one-third — comes from the private sector.
As well as being welcomed by investors, the news proved popular with others in the industry.
The chief executive of the National Housing Federation said it was “the most ambitious affordable homes programme in decades”.
Shelter, the housing charity, described it as a “watershed” moment.
The package forms part of the government’s pledge to build 1.5m homes during the lifetime of the current parliament. However, I think it’s fair to say that many industry experts doubt this will be achieved.
But whether the government meets its self-imposed target is of little concern to Vistry’s shareholders. There’s clearly a demand for more affordable homes. According to the group, 1m households are on waiting lists.
Getting its sums wrong
However, confidence in the housebuilder has taken a bit of a knock over the past nine months.
In October, the group revealed that it had “become aware that within one of its six divisions… the total full-life cost projections to complete 9 out of its 46 developments, including some large-scale schemes, have been understated by c.10% of the total build costs”.
The following month, it had to admit that it had under-estimated the total cost of these miscalculations.
Those pesky spreadsheets!
The result is that the group’s share price is now 40% lower than it was a year ago. In December 2024, it was relegated from the FTSE 100 to the second tier of the UK’s listed companies.
Its dividend was also suspended.
And although the group generates most of its revenue from public and third-sector partnerships, private housing sales are still important. Here, the market’s still fragile and its recovery is likely to depend on further interest rate cuts.
Looking ahead
But in my opinion, Vistry’s likely to benefit significantly from today’s spending review.
And its partnership model is “capital light”. The group’s partners will typically buy plots and fund construction. This means it doesn’t need to hold as much land as some if its rivals.
This should also help generate a higher return on capital employed (ROCE). The group’s targeting a very impressive 40% ROCE in the medium term.
For these reasons, long-term growth investors could consider adding the stock to their portfolios.
