Is it worthwhile to purchase shares of housebuilder Vistry since they appear to be inexpensive?

Over the last three years, Vistry, Labour's preferred home builder, has made grave strategic errors

Will it be able to heal?

On August 25, the announcement that the Kent-based company would receive 350 million as part of the government's 39 billion social and affordable homes program caused shares of housebuilder Vistry (LSE: VTY) to rise 18%.

The funding package was substantially more than the 278 million awarded under the previous program. Additionally, it was the biggest award (9.5 billion) that could have been given out in the initial round of funding. According to Vistry, the money will be used right away to build over 3,000 affordable homes. Funding per household has increased from 79,000 to 116,000.

One of the best ways for investors to profit from Labour's drive to get the nation building again is through Vistry, which provides about 15% of the UK's social and affordable homes. However, the company has continuously let investors down. There might be some light on the horizon following the most recent funding package. Investors don't appear to be factoring in any growth at the current valuation.

How Vistry rose to become the most shorted company in the UK.

It's safe to say that Vistry's history as a publicly traded company has been tumultuous. The company, which was formerly known as Bovis Homes, was built by former CEO and executive chair Greg Fitzgerald through a series of transactions. After acquiring Galliford Try's housing businesses for £1.1 billion in 2020, the group changed its name to Vistry. As politicians started to re-prioritize public-sector housebuilding, Fitzgerald sought to establish a builder that was more concerned with collaborations with local authorities and housing providers than with selling to private markets. In order to achieve this, the group paid £1.3 billion in 2022 to acquire Countryside Partnerships.

Fitzgerald struggled to bring his vision to life. It hasn't helped that US hedge funds Abrams Capital and Browning West, which own more than 20% of Vistry, are vocal shareholders. The funds increased their stakes after joining the Countryside merger. It was revealed in March 2023 that they intended to give Fitzgerald a bonus of up to 60 million if the shares reached 18 within three years. The plan was modeled after the arrangement with Jeff Fairburn, Persimmon's former boss, who was compelled to step down due to public outcry over his 75 million long-term bonus package. Even though Vistry's compensation committee rejected it, the harm had already been done.

The company has since issued six profit warnings. It warned three times in a row in October, November, and Christmas Eve of 2024 that higher-than-anticipated expenses would negatively impact the bottom line. In 2026, this trend persisted. When Vistry revealed Fitzgerald would retire in March and the company reduced its outlook for the year, the stock fell more than 20 percent in a single day. Vistry then predicted in May that pre-tax profit would be impacted by material cost inflation by about 10% for the entire year. These projections were completely abandoned in July. In addition to the 40 million reported for the first half of 2025, the company informed investors that it would report a pre-tax loss of approximately 30 million for the first half of 2026.

The shares have crashed due to this barrage of negative news. They are down 80% from their peak in August 2024, despite rising 20% since their multi-decade low in June. On the London market, Vistry is currently the most shorted company.

Is there a bright spot for Vistry's investors?

Sadly, there may be more unfavorable news to come for shareholders who have endured a lot. Fitzgerald allegedly pressured Vistry's land purchasers to buy any land they could find, including unusable land. Adam Daniels, the new CEO, is reportedly attempting to correct these mistakes. Although there may be write-downs, sales will ultimately help him improve the balance sheet. Customers will push a hard bargain because they are aware that the business is in a hurry to sell.

The good news in all of this is that Vistry operates in a market that is structurally sound and has more and more supportive stakeholders throughout the value chain. Speculation regarding a severely discounted rights issue has been dispelled by the government's 350 million cash pot, and private bank funding for social housing is beginning to flood in. This year, funding increases for the industry have been announced by Santander and Lloyds.

Daniels has an opportunity to reset expectations as the group replaces the CFO and deal with all previous issues as the new CEO. Instead of stumbling over its own mistakes, Vistry needs to take charge of costs and move forward.

It's a deep value play, Vistry.

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Brokers are upbeat despite the company's difficult situation. With a year-end target of 100 million of net cash and an average daily debt of 650 million in the second half compared to last year's 771 million, Panmure Liberum believes the company is making the right moves to reduce leverage. It has projected 16,330 housing completions for fiscal 2026, up from 15,658 as stalled developments from last year are completed. Completions are expected to increase to 17,170 in 2027 and 20,157 by 2030, according to the broker. In fiscal 2026, Panmure's pre-tax reported profit dropped from 196 million to 29 million, but by 2027 and 2030, it had recovered to 173 million and 452 million, respectively.

Peel Hunt has a similar forecast, projecting a pre-tax profit of about £300 million by the end of the decade. The shares appear cheap at current levels if Vistry approaches these numbers. According to data from Peel Hunt and Panmure, Vistry is currently trading at an average forward price-to-earnings (P/E) ratio of 5.5 for 2027. Additionally, its tangible book value per share, which is primarily land and unsold property, is 625p, which is 120% more than the current price. If Vistry can convince the market that it is back on track, the shares could double from their current price, which is more than 50% below book value and about half the sector average.