Vistry Group Plc Experiences Significant Share Price Drop

Shares of Vistry Group Plc (LON:VTYV) plunged by 30% following a trading update in which the company slashed its profit guidance for the 2024 financial year.

The drop in stock price resulted from the company's acknowledgment that cost projections for several developments within its South Division had been understated, leading to a downward revision in profit expectations for the next three years.

In a stock exchange filing, the UK housebuilder noted that a reassessment of full-life cost estimates for 9 out of its 46 active developments in the South Division, including some large-scale projects, revealed a material shortfall.

> “This is a big cut… Investors will be looking to understand how the issue arose, how it is being dealt with, and why Vistry is confident that the issue is confined to one division,” said analysts from RBC Capital Markets in a note.

The company indicated that the initial projections underestimated the total build costs by approximately 10%. While these 9 developments form a small fraction of the South Division's projects, they belong to a broader portfolio of around 300 developments across the entire Group.

> “Vistry believes the issue is confined to just 9 out of ~300 sites across the Group, but the impact on profits is significant: a 20% cut in profit guidance for FY2024,” RBC stated.

The unexpected cost increase, primarily focused in this one division, necessitated the Board to adjust its profit outlook.

As a result, Vistry now anticipates its adjusted profit before tax for FY24 to be reduced by approximately £80 million, lowering the Group’s expected profit to around £350 million, a steep decline from previous forecasts.

The profit hit isn't limited to 2024; the Group expects further impacts in subsequent years, with £30 million deducted from profit expectations for FY25 and another £5 million in FY26.

Concerns regarding the South Division have prompted Vistry to initiate changes in its management team within that division. An independent review has also been commissioned to investigate the causes of the cost misestimations and to ensure that similar issues do not arise in other segments of the business.

Despite these challenges, the Group expressed confidence that these problems are isolated to the South Division. Vistry reassured investors that the overall health of the Group remains strong. The company still aims for total completions of over 18,000 units in FY24, a key performance metric.

Additionally, it reaffirmed its commitment to achieving a net cash position by the end of 2024, shifting from a net debt of £88.8 million as of December 31, 2023. The Group also reiterated its £130 million share buyback program, announced in September 2024.