Vistry’s foundations have started to wobble

House buyers know the problem. What looks a dream home on the plan can turn out to be jerry-built. Vistry investors are discovering that about the “partnerships model” championed by its boss Greg Fitzgerald. Painfully, too, what with a mega profits warning sending the shares down 24 per cent to 963½p.
Ostensibly, this is nothing more than the tale of a localised screw-up: costs “understated” by 10 per cent in just one of Vistry’s six divisions, the south unit, covering nine of its 46 developments in a group portfolio of 300. As Vistry was at pains to point out in a short, vague update, “we believe the issues are confined” to that division, with “changes to the management team . . . under way”.
Yet £115 million of profits — £80 million this year, £30 million next, and £5 million in 2026 — and £1 billion of market value don’t abruptly vanish without hinting at wider problems. First, with the partnerships model itself. Second, with the group’s accounting controls. And, third, with Fitzgerald: a chap who doubles up as chairman and chief executive, a governance no-no, and who now looks to have been pushing the company too hard.
Vistry’s business model differs from that of most housebuilders. This time last year it switched tack to focus on the strategy that came with 2022’s £1.3 billion purchase of Countryside Partnerships. Spotting Britain’s “chronic shortage” of “affordable mixed tenure housing”, Fitzgerald set out to make Vistry the partner of choice for local authorities, housing associations and private investors in rental properties, such as Blackstone.
On the face of it, the model has one big attraction too. It’s “capital light”. Vistry’s partners buy the homes in advance, meaning that across all its sites an average 65 per cent are pre-sold. Vistry gets stage payments as homes are built, recycling the capital into new sites or dividends.
The result? Fitzgerald could promise investors 40 per cent returns on capital employed and £1 billion of cash returns by 2026. Not only that: with payment for Vistry’s homes secured, he could also build faster than rivals that must balance supply and demand. This year he’s shooting for more than 18,000 homes, en route to a gung-ho target, he claimed, of “40,000”. Indeed, it was only at last month’s half-year results that he was boasting that Vistry’s partnerships model was “significantly outperforming the traditional housebuilding market”.
Call it hubris because it now appears the model has a flaw. Vistry builds for what’s largely a fixed price. But, whatever its efforts to pass “cost risk” on to subcontractors, it’s failed to account for rising build costs in its south wing, spanning the Thames Valley, Kent and Sussex. Thanks to a construction skills shortage, brickies and plumbers are not short of work — even if Vistry denies industry talk that contractors walked off jobs after a pay row.
On top, there’s been a controls failure. Apparently, regional managers have only just started reporting their numbers directly to the finance chief, Tim Lawlor. But both he and the audit committee head, the new Essentra finance chief Rowan Baker, should have been up to speed sooner. Maybe managers were also afraid to break bad news to the hard-charging Fitzgerald, hoping to make up for it later.
In fact, Vistry only learnt of the problem on Friday night, so raising another question: whether, as Investec analysts put it, the issue is “one-off” or “more systemic”. No way can Vistry have bottomed out 300 sites in a weekend. So investors must now wait for an “independent review” for the answer.
The delay may be painful: enough time for investors to consider that UK local authorities are strapped for cash and that Vistry’s partnerships model may not be all it seems. Fitzgerald has a job on his hands putting this house in order.
That’s what you get for improving on the “leakage” and “supply interruptions” fronts: another £56.8 million penalty from Ofwat. It’s the latest setback for Thames Water, which has moved up a rung from the “lagging behind” category to “average” in the regulator’s annual “water company performance report” but still faces rebating customers for missed targets. How will that help a group drowning in £15.2 billion net debt to raise £3.25 billion of fresh equity?
Thames is the clearest example of the disconnect between the blueprint of Ofwat boss David Black for the sector and what companies say they need from his five-year price review. But, while the two sides slug it out ahead of his final determination, he does make a fair point. That, while companies want a big jump in bills so they can invest £105 billion in the network — versus the £88 billion he’s offered so far — they’re failing to spend all the enhancement budget they’ve got.
Between 2020 and 2024, 11 of the 16 underspent: a total shortfall of £1.7 billion. And, meantime, they’ve missed most of their targets, not least reducing pollution incidents by a mere 2 per cent instead of the promised 30 per cent. Black will have to compromise some more. But he’s right to question whether companies have the management skills or supply chains to efficiently invest extra money — before he turns on the taps with higher bills.
So much for the “Peaky Blinders” express. Apparently, the truncated railway HS2 won’t merely be running from Brum to Wormwood Scrubs. The extension to Euston is back on. Or so says transport supremo Louise Haigh. Still, will that be the eleven, ten or six-platform design? And who’ll be paying for a terminus last priced at £4.8 billion versus its £2.6 billion budget? Rachel Reeves’s new fiscal rules, the private sector or both? Don’t book your tickets just yet.