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In an otherwise quiet morning for the market Friday (8 November), one FTSE 100 share has just crashed by a massive 20%. It’s the second time it’s done that in a month.
On 31 October, I asked whether housebuilder Vistry Group (LSE: VTY) was the very best share to buy in November. I asked because it was the FTSE 100’s worst performer in October, plunging 28.93% over the month. That left it trading at a markedly lower valuation and I do love a bargain.
Vistry’s troubles began on 8 October, when the board issued a shock profit warning after admitting it had underestimated build costs in its Southern Division. The issue affected just nine out of 300 sites, but the board still slashed 2024 profit guidance by 20% to £80m. It also slashed 2025 guidance by £30m and 2026 by £5m.
This blue-chip is having a meltdown
This morning it slashed guidance again, amid ongoing problems at the Southern Division. The forecast profit blow has now jumped to £110m for 2024, £50m in 2025 and £10m in 2026.
In more bad news, forecast completions have been cut from 18,000 units to 17,500. The group still expects to deliver full-year adjusted profit before tax of around £300m, but it’s a right old mess and can we even rely on that number? Someone has got their sums badly wrong here. Touch wood the rest of the business isn’t affected, although I remain wary.
Like many businesses, Vistry has also been assessing the implications of last month’s Budget increase to employer National Insurance contributions. The hike will come into force from 6 April 2025, costing the group an additional £5m. Its supply chain will take a hit too.
All this comes at a bad time for the housebuilding sector, which has seen my previously rampant Taylor Wimpey shares sell off too. With inflation expected to edge up next year due to Budget spending, construction sector material and labour costs will rise. In a further blow, interest rates may be cut at a slower pace, hitting mortgage costs and buyer demand.
Being cheap isn’t everything, I’m afraid
The Vistry share price has fallen by half since peaking at 1,430p on 4 September, trading at just 708p today.
Just a couple of months ago, investors thought Vistry would be a prime beneficiary of the new Labour government’s housebuilding plans, due to its exposure to affordable housing and regeneration. That may still happen. But those plans always looked optimistic, given the shortage of skilled labour, and now Vistry has shot itself in the foot.
Some of the people involved in this shambles have moved on but this kind of problem shouldn’t happen to a well-run FTSE 100 company, so we can only assume it isn’t well run. The timing is awful, given wider worries.
On 31 October I said I might take a small position in Vistry when I had the cash. Luckily, I didn’t. And even with today’s price-to-earnings ratio of just 9.9, there are an awful lot of FTSE 100 shares I’d buy before this one.