Shares in housebuilder Vistry (LON:VTY) fell after reports a major credit insurer was set to adjust limits for its suppliers. There are fears the move, by Germany’s Allianz, could worsen the squeeze on the company’s cash flow.
H1 cash flow ‘significantly impacted’
According to the Financial Times, credit insurer Allianz Trade is reducing the cover it offers to Vistry’s suppliers. The insurer has reportedly warned firms it could reduce new cover by up to 70% depending on Vistry’s financial performance.
Last year, Vistry paid its suppliers within an average of 41 days. In its latest trading update, the firm said it had improved payment timescales to suppliers and subcontractors, which was partly why its debt level rose.
Vistry’s H1 cash flow was ‘significantly impacted’ by fewer partner deals, the timing of land sales and higher interest costs. CEO Adam Daniels, who took over in April, has begun a review designed to improve cash generation and reduce indebtedness.
Like the rest of the housebuilders, Vistry is facing a prolonged slowdown in the new-build market. The group, which owns the Bovis brand, has been selling properties at a discount and delaying work in progress to generate cash.
The Financial Times quoted the company as saying insurers ‘continue to provide substantial cover’ for its supply chain. The firm added: ‘We are not aware of any supplier withdrawing trade due to credit insurance changes and we have seen no interruptions to our supply chain.’
Vistry shares have been dogged by poor sentiment all year, and the fact it is cash-strapped is hardly new news. The last time we checked, it was the most-shorted stock in the UK market. The suggestion Allianz intends to reduce the level of cover it extends to suppliers isn’t going to help matters.
The firm is already working on self-help measures, but it needs demand to pick up. So far, there doesn’t seem to be any sign of that happening – Taylor Wimpey (LON:TW.) and Rightmove (LON:RMV) both cut their outlooks recently.
Consumer confidence may have improved recently due to easing geopolitical tensions, but households are still facing cost-of-living pressures. In addition, fixed-deal mortgage rates continue to rise depsite the Bank of England holding rates steady.
