London’s stock market has been volatile so far in 2023 as worries over the global economy have risen. Many top-quality shares have slumped along with more vulnerable companies. This leaves an opportunity for eagle-eyed investors to load up their portfolios with great value stocks.
Vistry Group (LSE:VTY) is one dirt cheap FTSE 250 income share I’ll aim to buy when I have extra cash to invest. I think it’s a top stock to own despite predictions of softer property price growth in the future.
Near-term trouble
According to Statista, the average price of a UK home soared 71% in the decade to July 2022. This in turn supercharged the profits that homebuilders like Vistry enjoyed over the period.
But speculation is rising that an increase in borrowing costs and decelerating population growth will dampen property price growth going forward.
For example David Miles, of government watchdog the Office for Budget Responsibility, this week told an Economic Statistics Centre of Excellence conference that…
Those forces driving them up are going to be much weaker, I suspect, in the next 40 years than they have been in the past 40 years… If anything, this unusual age of massive rises of house prices may be nearing an end.
The good news
However, this doesn’t mean housebuilders like Vistry will no longer deliver market-beating returns. Data suggests the UK’s colossal housing shortage is here to stay. And this means residential property prices should continue to rise at a rapid pace.
Housebuilding activity remains grim in the UK due to difficult industry conditions today and planning rules. This is why the government has dropped its target to build 300,000 new homes a year.
At the same time the UK population continues to grow. And a raft of supportive factors – from a competitive mortgage market that’s reducing borrowing costs, to ongoing support for first-time buyers from the government — should continue helping people get onto the housing ladder.
This is why Vistry is planning to supercharge build rates over the medium term. It’s looking to put up 20,000 homes a year, a significant rise from current levels (it registered 11,951 completions in 2022).
As a potential investor I’m also encouraged by the company’s ability to maintain its chunky margins. Even as higher construction costs weighed on performance last year the builder recorded an adjusted gross margin of 23.4%. This was up 1.1% year on year.
A brilliant bargain
I don’t believe these factors are baked into Vistry’s rock-bottom valuation. Today it trades on a forward price-to-earnings (P/E) ratio of 9.5 times, below the FTSE 250 average around 11 times.
As a fan of value stocks I’m also attracted by the housebuilder’s gigantic dividend yield. For 2023 this sits at 5.5%, far higher than the index average of 3.2%.
I think Vistry could deliver exceptional returns over the long term. And at current prices I think it’s too cheap to ignore.
