Vistry Shares Plunge 30% Following Profit Forecast Reduction Due to Cost Issues

Shares of Vistry Group Plc experienced a dramatic decline of 30% following a trading update in which the company significantly lowered its profit guidance for the 2024 financial year.

This sharp drop in stock price occurred after Vistry revealed that cost projections for various developments in its South Division had been underestimated, resulting in a downward revision of profit expectations over the next three years.

In a filing with the stock exchange, the UK housebuilder indicated that a reassessment of full-life cost estimates for nine out of its 46 active developments in the South Division, including several major projects, uncovered a substantial shortfall.

Analysts from RBC Capital Markets commented, “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 problem is confined to one division.”

The company acknowledged that initial estimates had underestimated total build costs by roughly 10%. While these nine developments represent only a small segment of the South Division’s projects, they are part of a broader portfolio of about 300 developments across the entire Group.

RBC noted that while Vistry believes the issue affects just these nine sites, the financial repercussions are significant, with a 20% reduction in profit guidance for FY2024.

The unanticipated rise in costs, primarily restricted to this one division, prompted the Board to revise its profit outlook. Consequently, Vistry now anticipates its adjusted profit before tax for FY24 will decrease by approximately £80 million, bringing the expected profit down to around £350 million—a steep decline from previous projections.

The profit shortfall will not be limited to 2024, as the Group expects additional impacts in the following years, projecting a reduction of £30 million in profit expectations for FY25 and a further £5 million in FY26.

Given the seriousness of the issues within the South Division, Vistry has begun implementing changes to its management team in that division. An independent review has also been initiated to explore the reasons behind the cost misestimations and to ensure similar issues do not occur in other areas of the business.

Despite these challenges, the Group remains confident that the problems are isolated to the South Division, asserting that the overall health of the company remains robust. Vistry aims to complete over 18,000 units in FY24, a crucial performance metric.

Furthermore, the company reiterated its goal of achieving a net cash position by the end of 2024, in contrast to a net debt of £88.8 million recorded as of December 31, 2023. Vistry also reaffirmed its £130 million share buyback program, which was announced in September 2024.