ii view: Crest Nicholson names new CEO as profits dive

Full-year results to 31 October

• Revenue down 28% to £658 million
• Adjusted pre-tax profit down 70% to £41.4 million
• Final dividend of 11.5p per share
• Total dividend for the year unchanged at 17p per share
• Group net cash down to £65 million from £276 million a year ago

Guidance:

• Forward sales as of 1,732 builds or £435 million in value of 19 January 2024, down from 2018 units or £511 million same time last year

Chief executive Peter Truscott said:

"Recently there has been some positive macro trends with inflation and mortgage rates falling, which bode well for the housing sector. Although it is too early to gauge customer behaviour, we have been encouraged by an increase in customer interest levels and inquiries this calendar year. However, we remain mindful of ongoing uncertainties within the broader economy."

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ii round-up:

Housebuilder Crest Nicholson Holdings (LSE:CRST) today pointed to early signs of returning consumer confidence and improving demand despite reporting a sharp fall in annual profits that broadly matched previous expectations. 

Underpinned by forward sales of £435 million as of mid-January, and recent falls in mortgage rates, management expects trading conditions to improve towards the second half of 2024. Forward sales were £511 million this time last year. 

Shares in the FTSE 250 company rose by 2% in opening UK trading having fallen by 8% in 2023. That’s in contrast to gains of around a third for mid-sized rivals Bellway (LSE:BWY) and Redrow (LSE:RDW) last year. 

Adjusted pre-tax profit for the year ended October 2023 fell 70% to £41.4 million, hindered by challenging trading conditions and additional costs of £5.5 million in relation to builds in Farnham and other legacy and low-margin sites. 

The results were also accompanied by news of the pending retirement of chief executive Peter Truscott with Martyn Clark, currently Chief Commercial Officer at Persimmon (LSE:PSN), named as his replacement "later in the year". 

An exceptional charge of £13 million is also being taken in relation to a legal claim recently received relating to 2021 fire damage of a low-rise bespoke apartment scheme built by Crest. 

Group net cash of £65 million as of late October had fallen from £276 million a year ago, although that did allow the company to hold the total annual dividend payment at 17p per share. 

Crest’s Annual General Meeting (AGM) is scheduled for 19 March. 

ii view:

Founded in 1963, Crest today constructs a mixture of houses, flats, and some commercial premises largely across the southern half of England and the Midlands. Total builds of 2,020 during the financial year 2023 is down from 2,734 units in 2022, with an average selling price of £406,000 up from £388,000 the year before. Management initiatives to aid performance during 2023 included merging its East Anglia division into its Eastern division and reducing staff numbers. 

For investors, additional costs required during this latest financial year now require improved commercial processes and controls. The backdrop for its customers remains tough given heightened borrowing costs and the end of previous government assistance such as the ‘Help-to-Buy’ scheme. Redress for cladding and fire issues across the wider industry persists, while a new chief executive could decide to reduce the dividend to conserve cash. 

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On the upside, the new CEO brings nine years of senior role experience at major builder Persimmon. Signs of improved customer confidence have been flagged by Crest given reduced mortgage rates, build cost inflation has eased, while a historic dividend yield of around 8% is not to be ignored. 

For now, and while a new CEO and signs of consumer optimism offer hope, more cautious investors are likely to await firmer evidence of a recovery, both economically and for Crest itself, before committing capital.

Positives: 

• Resilient selling prices 
• Hopes for reduced interest rates

Negatives:

• Uncertain economic outlook
• Dividend cover under one times

The average rating of stock market analysts:

Strong hold