Berenberg slashes Vistry price target after profit warning

On Friday, Vistry cut its FY24 adjusted pre-tax profit forecast to around £300m from £350m.

Following the profit warning, Berenberg said it was keeping its ‘hold’ rating on the shares but cutting earnings per share estimates by 15% on average over 2024-26, and reducing the price target.

"Vistry’s second profit warning in the last month raises some big questions about its business model and strategy, in our view," it said.

"While we note management comments that the cost issues were confined to one division, we nevertheless continue to think it raises more fundamental questions about what a realistic and viable margin is in its forward-sold partnership model.

"Secondly, we think some of the commentary about mixed demand patterns from social housing providers raises questions about what the actual level of fully funded social housing demand is currently as opposed to the more generalised aspirations of the UK government’s long-term social housing targets."

To be clear, Berenberg said it does not think the partnership model is broken but it does think questions need to be considered on what sustainable volume growth rates and profit margins are achievable over the mid-term.

The bank said that while Vistry did not provide any formal guidance for 2025, it did flag certain issues which present downside risk to prevailing forecasts.

"Firstly, it noted that its growth in 2025 would be ‘influenced by our need to stabilise the South Division’ (the source of cost issues) while it also flagged the potential impact on profitability from some build cost inflation reemerging and higher national insurance costs from next year."