This FTSE 250 stock could be about to take off!

Vistry Group (LSE:VTY) is a FTSE 250 stock that’s had a terrible 12 months. On 8 October 2024, the building group had to make an embarrassing admission. It told investors that it had “recently become aware that within one of its six divisions… the total full-life cost projections to complete 9 out of its 46 developments, including some large-scale schemes, have been understated by c.10% of the total build costs”.

Keen to point out this was an isolated error – the group has over 300 developments underway – it said the problem was going to reduce its adjusted profit before tax over the next three years by £115m. On the day this news was released, its share price fell 24%.

One month later, the group confirmed that not only had it under-estimated the cost of some of its projects but it had also understated the impact by £50m. This wiped another 15.5% off the group’s market-cap.

Since May 2024, the share price has tanked 52%.

However, its most recent trading update didn’t mention the issue, so it sounds as though (expensive) lessons have been learned. And I think there are two principal reasons why there could be an opportunity here.

A different business model

First, Vistry specialises in affordable housing and its customer base is primarily local authorities and housing associations. By contrast, most of its rivals sell almost exclusively to private buyers.

This means the group’s likely to benefit more from the government’s emphasis on getting Britain building again. In its manifesto, Labour promised to restore mandatory housing targets and embark on a series of planning reforms. It said it would “support councils and housing associations to build their capacity and make a greater contribution to affordable housing supply”. The legislation’s currently making its way through the House of Commons.

As a start, the government has announced an additional £2bn of funding for the Affordable Homes Programme. This is for projects commencing in March 2027 and scheduled to be finished by June 2029. Vistry says this has provided “positive impetus to the sector“.

Economic backdrop

Second, sales to private buyers – made through its Bovis, Linden Homes and Countryside Homes brands — should pick up if, as expected, the Bank of England continues to cut interest rates.

Also, in recent weeks, it’s been widely reported that there’s been an increase in the availability of mortgages. Positively, competition among lenders means there’s been a rise in the number of loans available with a sub-4% interest rate.

One to consider

Undoubtedly, the miscalculation of costs has dented confidence in the business. And construction cost inflation continues to run ahead of consumer prices. In addition, it’ll take a while for the anticipated additional funding to flow through to the number of homes completed by Vistry and the group’s bottom line.

However, on balance, I think the group’s well positioned to benefit from a new emphasis on affordable housing and its so-called “differentiated partnerships strategy”. On this basis, I think it’s a growth stock that investors could consider.

The post This FTSE 250 stock could be about to take off! appeared first on The Motley Fool UK.

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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Vistry Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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