It is a case of “so far, so good” with regard to Vistry since our initial analysis of the FTSE 250 firm last month. The shares have gained nearly 18pc and a trading update last week featured the pleasing comment that the board was contemplating the reinstatement of the dividend, albeit at a “modest” level, alongside next spring’s full-year results.
Analysts are already pencilling in a payment of 1.8p a share. Although a prospective yield of 0.2pc is unlikely to set too many pulses racing the plan to rejoin the dividend list does signal the management’s confidence in the underlying housebuilding market and the company’s own performance.
Earl Sibley, the chief financial officer, emphasised the firm’s strong cash flow and reiterated its target to have net cash on the balance sheet by the end of 2021.
He said it was still Vistry’s goal to deliver pre-tax profits of £310m in the 2021 calendar year. Boosted by the acquisition of Linden Homes from Galliford Try, such a figure would easily outstrip the earnings generated at the pre-pandemic peak.
More enticingly still, it would put Vistry’s shares on barely eight times forecast earnings for 2021 and help to underpin next year’s consensus dividend forecast of 35.5p a share, enough for a yield of more than 4pc and with three times earnings cover for good measure.
There are still risks, especially as Vistry must ensure that the integration of Linden Homes run smoothly, while any setbacks in the fight against the virus or the introduction of longer, or more draconian, lockdowns would surely dampen activity.
But the shares still trade at a discount to net asset value – a market value of £1.9bn compares with the last stated shareholders’ funds figure of £2.1bn – and that at least builds in some protection.
Moreover, demand still seems to be outpacing supply in the housing market and promises from the Prime Minister to provide young first-time buyers with fixed-rate long-term mortgages worth up to 95pc of the property value and the Help-to-Buy scheme are hardly likely to change that.
If anything they will only add to the imbalance, to the potential benefit of prices and profits for the builders, although the planned expiry of the stamp duty holiday next March is something that needs to be watched.
A pullback is possible after a strong run but the foundations of the investment case feel sound.
Questor says: hold
Share price at close: 835.5p
Any company whose products are rugged touch screens is inevitably going to find life hard during a pandemic, when contact for any length of time with other people is seen as problematic, and this certainly applies to Zytronic.
Last week’s full-year results included a 37pc drop in sales, a small operating loss and the cancellation of the final dividend, which went the way of the first-half payment.
Sales for gaming machines in casinos, vending machines, bank tellers, ticketing machines and even signs all suffered.
So far, so bad and unfortunately the stock has proved a poor pick since our first look in July 2018. Yet this column cannot quite bring itself to give up on Zytronic.
The market value is about £23m and the balance sheet still has £14m in net cash. That resource provides some support to the share price, funds innovation, where the company has a terrific record, and buys the firm time as it waits for its markets to come back.
Zytronic is also working hard to help itself. It is pruning costs where it can, investing in a new website and providing more customer support via online and social media channels. It is also developing screens that offer contactless interactivity at a distance of up to an inch (30mm).
It is going to be a long haul back but the firm is at least well financed.
Questor says: hold
Share price at close: 142.5p
Russ Mould is investment director at AJ Bell, the stockbroker
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