Vistry Group PLC (LSE:VTY)’s updated strategy gives it a point of difference from other housebuilders and will free up cash for shareholder returns, commentators said today.
"Having another string to its bow is proving useful to developer Vistry. Unlike rival housebuilders it has a significant regeneration and affordable housing footprint which it can pivot to when times are tough," said AJ Bell's Russ Mould.
The housebuilder is revising its strategy to focus solely on building affordable homes through its "high return" partnerships division, to help address the UK's "chronic shortage of affordable mixed tenure housing".
Vistry said it plans to focus operations on its "high return, capital light, resilient partnerships model" by merging its housebuilding and partnerships businesses before the end of this year.
Josh Warner, market analyst, City Index explained the shift in strategy to focus on partnerships “will offer higher returns and require less capital, which is good news for shareholders that will see more cash funnelled back to them over the coming years as a result.”
The firm said the decision would result in "a significant release of capital" and, it plans to return £1 billion to shareholders over the next three years.
Mould explained that by stopping building private homes for the foreseeable future, it can take costs out of the business by scaling back its workforce and freeing up capital.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said the strategic shift came as no surprise, “given housebuilding's a notoriously cyclical sector.”
“In contrast, Partnerships' revenues tend to be more robust - the need for more affordable housing doesn't go away because economic conditions look tough,” he added.
“This provides large fixed-volume projects which should hold up better in a downturn,” he felt.
AJ Bell's Mould also noted that affordable housing "is much less sensitive to interest rates and the economic backdrop."
It should therefore "give Vistry some solid foundations which its peers could only dream of right now – reflected in a resilient set of first-half results.”