David Capital Partner's Adam Patinkin thesis on asset light house builder, Vistry Group $VTY.L
Jan 7, 2024
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Adam Patinkin, Managing Partner at David Capital Partners, LLC, discusses his investment thesis on Vistry Group PLC, UK’s leading provider of affordable mixed tenure homes. Topics include Vistry's partnership business model, competitive moat, future growth prospects, and UK housing cycle.
Vistri's partnership business follows an asset-light model, focusing on complex regenerations and densification, setting it apart from traditional house builders.
Vistri's partnership business has a significant competitive advantage due to its deep expertise, strong track record, and relationships with local authorities, making it difficult for other builders to replicate their success.
Under the leadership of CEO Greg Fitzgerald, Vistri's partnership business has experienced significant growth, addressing the housing shortage in the UK and positioning the company for future success.
Vistri's partnership business, with its efficient operations, strong management team, competitive advantage, and focus on delivering complex regenerations and building strong relationships, is well positioned for continued growth and value creation in the UK housebuilding industry.
Deep dives
The Unique Approach of Vistri's Partnership Business
Vistri's partnership business is distinct from traditional house builders as it follows an asset-light model. While traditional builders focus on land acquisition and the planning permission process, Vistri's partnership business focuses on complex regenerations and densification. They work hand in glove with local authorities and partners to regenerate areas and create affordable housing while maintaining community relations. The partnership business has a strong track record, exceptional returns on capital, and a competitive moat against traditional builders. Vistri's management team, led by CEO Greg Fitzgerald, plays a key role in the success of the partnership business.
The Competitive Advantage of Vistri's Partnership Business
Vistri's partnership business has a significant competitive advantage due to its deep expertise, strong track record, and relationships with local authorities. Unlike traditional builders, Vistri's approach focuses on complex redevelopment projects, partner management, and delivering revitalized communities. They offer an asset-light model that benefits local authorities by utilizing existing land, providing affordable and PRS housing, and creating a happier community. Vistri's ability to pre-sell a significant portion of the projects provides visibility and enables negotiating better pricing with subcontractors. This competitive advantage makes it challenging for other builders to replicate their success.
The Growth Potential of Vistri's Partnership Business
Vistri's partnership business has experienced significant growth in recent years. Under the management of Greg Fitzgerald, the business has achieved substantial profit growth and a five-star rating in the Home Builders Federation. The ability to regenerate and densify land while providing affordable and PRS housing addresses the critical shortage of housing in the UK. Vistri's strong relationships with local authorities and its exceptional management team position the business for future growth. As they transition to a pure-play partnership model, the potential for value creation and impressive returns on equity is evident.
The Future Outlook for Vistri's Partnership Business
While Vistri's stock chart may have appeared cyclical and flat in the past, the trajectory of the partnership business is poised for strong growth in the future. With a focus on delivering complex regenerations, building affordable and PRS housing, and maintaining strong relationships with local authorities and housing associations, Vistri's partnership business is well positioned for success. The expertise and track record of the management team, led by Greg Fitzgerald, combined with their efficient operations, competitive advantage, and growth potential indicate a promising outlook for the partnership business. The move towards a pure-play model further solidifies Vistri's position as a leader in the UK housebuilding industry.
The value of land regeneration benefits local authorities
Land regeneration in the countryside has proven to be highly beneficial for local authorities. Not only does it lead to happier citizens and lower crime rates, but it also results in a significant increase in land value. Local authorities can borrow against the enhanced land value and benefit from higher tax revenues. The financial gains can be substantial, with the value of land assets more than doubling after regeneration. This win-win situation gives local authorities a strong incentive to invest in successful regeneration projects.
Sports teams and real estate development as examples of value creation
Investing in sports teams and real estate development projects can lead to significant value creation. Sports teams that build stadiums as part of mixed-use developments can benefit from the increased value of surrounding land. Similarly, developers who revitalize rundown areas and create new amenities can experience a surge in land value. These examples demonstrate the potential of turning blighted areas into vibrant, valuable assets by attracting people and investment. Consequently, countryside regeneration projects can unlock substantial economic value by transforming unappealing areas into attractive living spaces.
Challenges and growth potential for Vistry's partnership model
Vistry's partnership model has faced skepticism regarding its growth potential and ability to deliver large-scale projects. Some highlight concerns about the UK housing market's growth rate and the capacity for Vistry to exceed market share limits. However, Vistry has proven resilient during economic downturns and has rapidly built homes compared to traditional volume house builders. The company's focus on asset turns, streamlined operations, and phased projects contribute to its efficiency. With housing demand, the potential for further partnerships, and a disciplined approach to hiring and training, Vistry is well-positioned for continued growth and achieving high returns on capital.
Adam Patinkin, CFA, Managing Partner at David Capital Partners, LLC, joins the podcast to discuss his thesis on Vistry Group PLC (LSE: VTY), UK’s leading provider of affordable mixed tenure homes.
[1:28] David Capital's background and investing philosophy
[7:07] Overview and history of Vistry Group $VTY.L + David Capital's background with $VTY.L and why Vistry is interesting to Adam
[18:39] Partnerships business - what is it?
[27:04] What is unique about Countryside's business model (Vistry's competitive moat)
[36:25] Why Adam thinks that Vistry's future growth is going to unlock, despite trading flatish for last 15 or so years
[43:10] What "Mixed Tenure Project" means
[48:02] Partner pushback?
[52:40] NPC comparison
[56:17] What breaks the Vistry thesis?[1:00:55] UK housing cycle - where are we at[1:06:02] Vistry valuation + growth prospects
[1:16:25] What is the sell-side missing[1:22:38] CEO comp package and newly appointed board directors[1:25:22] Vistry exposure amongst UK funds
Today's episode is sponsored by: Alphasense
This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the #1 rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities, like Smart Synonyms and Sentiment Analysis, provide even deeper industry and company analysis. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As a Yet Another Value Podcast listener, visit alpha-sense.com/fs today to beat FOMO and move faster than the market.
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