Daily Stock Market Report (Tue 24 Dec 2024): VTY, WNWD

Good morning and Happy Christmas Eve!

A profit warning and a takeover offer today have provided quite an apt summary of the UK markets in 2024. But for those looking for a bit more festive cheer I would encourage you to read one of the review articles we've published in the last few days:

• Graham has published his watchlist, including a review of the ten stocks in his 2024 list and an updated list for 25. You can read that here.

• Ed has reviewed the winners and losers in the StockRanks. Click here to read that.

• And Mark has provided a poignant summary of 2024 through the eyes of risk. Click here for that.

Companies reporting 

Vistry (LON:VTY) 

Down 16% - Trading Update (profit warning) - Megan - AMBER/RED

The cynic in me thinks that any company choosing to announce a profit warning on Christmas Eve is doing so in the hope that fewer investors will be around to see it. But as this is the third profit warning from housebuilder Vistry (LON:VTY) since September, this may be more a question of management running out of dates to reveal its steady stream of bad news.

This morning, the company has revealed that a number of agreements which were expected to complete in the current financial year will not be concluded until 2025. That is in addition to the transactions which management has walked away from, deeming commercial terms not favourable enough.

The upshot is that adjusted pre-tax profits will be £250m for the 2024 financial year, down from previous guidance of £300m, while year end net debt is now expected at £200m (compared to a previously forecast net cash position).

Today’s announcement concludes a horrible quarter for Vistry. In September, management revealed accounting problems which had affected 9 of the company’s 300 subsidiaries - problems which stemmed from a slowdown in the housing market. Then, adjusted PBT guidance was revised downwards to £350m.

Then came a second warning when it turned out that the nationwide housing market slowdown was not solely confined to a handful of the company’s operating divisions. And now a third. Profit warnings really do come in threes.

So is that it?

Some of Vistry’s shortfall in 2024 comes from the fact that contracts have taken longer to conclude than previously expected and they will therefore come in 2025. But some of the shortfall comes from the fact that contract terms are not as favourable as management would have liked and so they have walked away, awaiting better market conditions in 2025.

There is hope that these improved conditions might indeed materialise. Base rates are likely to come down at the start of the year which will improve mortgage terms, providing some stimulus for the housing market. Recent outlook reports from the likes of Zoopla have pointed to a better year for UK housing in 2025. Perhaps management has been quite canny in writing off 2024 as a disaster and waiting for better market conditions next year.

Megan’s view:

Compared to some of its UK listed housebuilding peers, Vistry looks like an enticing valuation. Shares are currently trading on less than 7 times forecast earnings, although it should be noted that those forecasts haven’t yet stabilised.

There’s an attractive yield on offer too, but with the balance sheet in worse shape than expected, the dividend maybe isn’t as safe as it once was.

Today’s update doesn’t answer all the questions investors might have on the outlook for the business. Those could be provided in January when management will put out another trading update alongside a call for analysts. I am inclined to stay on the fence until then. RED/AMBER

Windward (LON:WNWD)

Up 42% - takeover offer - Megan - PINK

Another day, another takeover bid for a UK listed company.

Windward is a maritime specialist which offers AI powered ‘decision support’ to help companies manage their supply chains and trading routes. It listed in 2021 and has enjoyed decent demand since then - maritime safety has been a hot topic in the last few years. Revenues were £28m last year and are forecast to be £36m in FY2024.

Today’s takeover offer, which has been recommended by the board, values the business at £216m. Investors will receive 215p per share in cash, which is a 47% premium to the closing price on Monday. The offer is subject to the approval of shareholders who will have the opportunity to vote at a general meeting next year.

And the acquirer is, you guessed it, an American private equity firm. FTV Capital will be buying Windward via its UK fund, Octopus, via a newly set up bidco. The fund has reportedly been eying up Windward for some time because of its “best-in-class maritime AI analytics”.

Megan’s view:

There isn’t an awful lot shareholders can do about this one. Standard recommendations around takeover offers is for shareholders to sell half their shares at the date of the announcement to free up the cash (otherwise there is an opportunity cost which comes from waiting for the deal to mature) and then wait for the deal to complete for the final payout.

That seems like a sensible thing to do in this case. The board is onside, so this looks like a done-deal. Rival bids could perhaps push the share price higher, but that seems unlikely.

But away from the specifics of this case, this is yet another example of the UK market failing to grasp an interesting opportunity.

It’s true Windward hasn’t been an easy company to analyse. It’s loss making, Israeli-based and operates in a novel market. Its shares suffered heavily in its first few years on the market, reaching a nadir below 40p in June 2023. Since then momentum has picked up, but this has been partly fuelled by takeover speculation.

The company hasn’t been especially well capitalised and management failed to prop up its wobbly balance sheet with a cash injection from the market - falling share prices don’t tend to encourage capital raises.

Today’s takeover offer is a premium to the IPO price, so most investors who bought Windward while it has been listed will have made money from the deal. But overall this isn’t a good reflection of the state of the UK markets at the moment. Interesting opportunities in fast growing industries shouldn’t be being snapped up by US private equity. Here’s to hoping for a more positive 2025.