JPMorgan downgrades Vistry, sees little scope for outperformance

JPMorgan Cazenove has cut its recommendation for Vistry from 'overweight' to 'neutral' and slashed its target price more than a third after a profit warning from the housebuilder on Tuesday, saying that the company needs to "restore confidence" among investors.

Vistry's share price has now tumbled nearly 30% in three days after the company revealed that it had underestimated build costs on nine schemes in its Southern Division, meaning that full-year adjusted pre-tax profit would be £80m lower than previous estimates.

"We had previously turned positive on Vistry in our Spring Refresh repot as we saw it benefitting from a boost in affordable housing, which remains the case, as well as increasing interest from domestic investors on its Partnerships model. We also thought that investor scepticism on the company’s ability to execute against its targets [...] would provide a backdrop for Vistry to positively surprise against," JPMorgan Cazenove said in a research note.

However, the bank said that this week's profit warning will leave Vistry's "financial credibility requiring some time to rebuild". While Vistry said this was a one-off event, JPMorgan questioned whether this was a "broader issue" within the company.

"We see little scope for outperformance in the near term, with the company likely needing to go through a period of rebuilding financial credibility and restoring confidence to attract investors," the bank said.

JPMorgan cut its target price to just 970p from 1,550p previously.