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Questor: this housebuilder is not as cheap as it was but still appears to offer value. Hold

Construction worker - Bloomberg
Construction worker - Bloomberg

Emerging synergies from the Galliford Try deal, positive momentum at the partnerships business and upgrades to profit forecasts for the year all mean that Vistry’s first-half results published a week ago make for good reading.

Underpin all of that with net cash on the balance sheet, which means the FTSE 250 firm can invest in its strategic growth plans and still return cash to shareholders, and the shares look attractive, even if we can already point to a paper gain of about 70pc following our analysis of November last year.

There are still questions to answer. Investors can be forgiven for wondering what will happen to the housing market once the stamp duty break finally expires or if the Government ever decides to stop interfering via schemes such as Help to Buy. Increased raw material costs and possible labour shortages are near‑term issues.

Yet demand for good-quality dwellings still seems to outstrip supply and the pandemic could have an influence here if working from home becomes an established pattern and people seek bigger houses.

Strong demand means prices are rising more quickly than costs, to the benefit of profit margins. And the Government continues to interfere in the market with its 95pc mortgage guarantee scheme, which enables would-be buyers to acquire a home priced at up to £600,000 with a deposit of just 5pc. Nothing, but nothing, lasts longer than a temporary government programme.

Vistry’s partnerships scheme, which gives it exposure to regeneration and community projects, could yet deliver some pleasant surprises too. The ambitious goal of the chief executive, Greg Fitzgerald, to generate £1bn of revenues here in 2022 already looks to be within reach as last year’s acquisition of assets from Galliford Try starts to pay off.

Finally we come to valuation. A forecast yield of 4.8pc for 2021 looks attractive and the anticipated payment is more than twice covered by earnings, according to consensus analysts’ forecasts.

A forecast price-to-earnings ratio of less than 10 should not leave us as a hostage to fortune either, as it prices in at least some of the doubts about demand in the wake of the demise of the stamp duty holiday.

Nor are the shares expensive on a book value basis, since a market value of £2.7bn compares with £2.2bn of net assets. Even after adjusting for £547m of goodwill (an intangible asset relating to the Galliford Try transaction), net assets come to £1.7bn. A price to tangible assets ratio of 1.6 is in the middle of the one-to-two range analysts use as a rule of thumb to judge whether a housebuilder’s shares are looking cheap or expensive.

Vistry is not as cheap as it was but still appears to offer value.

Questor says: hold

Ticker: VTY

Share price at close: £12.12

Update: Yellow Cake

If you will pardon the expression, this column had expected Yellow Cake, the uranium storage specialist, to be a bit of a slow burn, as limited supply, diminishing inventories at utilities and new plant construction gradually brought the commodity’s price to the boil (sorry again).

But a fundraising from an American fund that invests solely in uranium, apparent interest from the WallStreetBets crowd on Reddit and comments from a prime ministerial candidate that nuclear should be part of Japan’s long-term energy plans are all firing the uranium price to a seven-year high at around $40 a pound.

This is good news for Yellow Cake, which just last month topped up its holdings of uranium oxide to the tune of two million pounds at $32.38 a pound. That leaves the Aim-quoted concern holding 15.9 million pounds in its Canadian warehouse, a resource with a market value of $635m, or £460m assuming £1 is worth $1.38.

That puts the company’s market capitalisation of £536m at a premium to its asset value but further uranium price rises – possible thanks to the fundamentals of supply and demand, let alone hot money flows – could yet eliminate the gap, and the uranium story feels like it is hotting up.

Questor says: hold

Ticker: YCA

Share price at close: 349p

Russ Mould is investment director at AJ Bell, the stockbroker

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