Thank you for the detailed post. I agree that it is unlikely that the management fully hit their goals for 3 years from now, and that nonetheless if they make significant progress towards those targets there is a lot of upside to be had.
For your valuation of 200% upside in 3 years, what were your assumptions? That in 3 years the company will reach a ROCE of 30% it seems? With what margins? On what land bank volume?
Also do you have any thoughts about the long term economics of the partnership model, say in 5-10 years from today and after the full transformation has been completed, what would be the building volume (there seems to be a limit of supply), ROCE and margins?
Thank you. Valuation wise I’m looking at it two ways.
First, I think 30% ROIC is plausible and that justifies 3x book value to me.
Second way is assuming the following:
- 10% ebit margin
- EV/EBIT of 10x
Since 200% appreciation from current market cap would be £6B, the required ebit to justify that valuation at a 10 multiple would be £600m. Assuming a 10% ebit margin this would mean revenue needs to get to £6B. This is an increase of around 50% from current levels of revenue. In an article from last year (link below) the CEO said they aim to get to 24k houses sold per year by 2028. This is 40% more than the current 17K houses they built in 2024. So theoretically the 50% increase in revenue is possible (adding moderate selling price increases as well). This implies 10% annualised revenue growth over the next 4 years (2025-2028).
Thank you for the detailed post. I agree that it is unlikely that the management fully hit their goals for 3 years from now, and that nonetheless if they make significant progress towards those targets there is a lot of upside to be had.
For your valuation of 200% upside in 3 years, what were your assumptions? That in 3 years the company will reach a ROCE of 30% it seems? With what margins? On what land bank volume?
Also do you have any thoughts about the long term economics of the partnership model, say in 5-10 years from today and after the full transformation has been completed, what would be the building volume (there seems to be a limit of supply), ROCE and margins?
Thank you. Valuation wise I’m looking at it two ways.
First, I think 30% ROIC is plausible and that justifies 3x book value to me.
Second way is assuming the following:
- 10% ebit margin
- EV/EBIT of 10x
Since 200% appreciation from current market cap would be £6B, the required ebit to justify that valuation at a 10 multiple would be £600m. Assuming a 10% ebit margin this would mean revenue needs to get to £6B. This is an increase of around 50% from current levels of revenue. In an article from last year (link below) the CEO said they aim to get to 24k houses sold per year by 2028. This is 40% more than the current 17K houses they built in 2024. So theoretically the 50% increase in revenue is possible (adding moderate selling price increases as well). This implies 10% annualised revenue growth over the next 4 years (2025-2028).
Link to article: https://www.building.co.uk/focus/im-extremely-demanding-greg-fitzgerald-on-delivering-the-vistry-growth-plan/5128270.article