ii view: Crest Nicholson remains a solid income play

A smaller player with an estimated future dividend yield of over 5%. We assess prospects. 

Trading update from 1 Nov to 21 March 2022

ii round-up:

Housebuilder Crest Nicholson (LSE:CRST) today summarised its start to the new financial year as ‘strong’ as housing market conditions remained favourable. 

Sales per outlet per week had been running at 0.98 during the near five-month period, up from a rate of 0.80 over its last full financial year to the end of October. 

Crest Nicholson shares rose marginally in UK trading having fallen by around a fifth year-to-date. Shares for the biggest UK housebuilder by market value Persimmon (LSE:PSN) and FTSE 250 index constituent Redrow (LSE:RDW) are down by a similar amount.

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Crest builds a mixture of houses, flats, and some commercial premises across the southern half of England and the Midlands. 

Management pointed to a strong forward order book position, giving good visibility, and providing it with confidence in meeting its revenue targets for the current financial year. As of mid-March, its order book covered 84% of its full year 2022 revenue target, up from 63% in January when it reported 2021 results.

As with rivals, costs for raw materials and energy had been rising, although as with rivals, increases in home product prices had been offsetting the elevated costs. 

Home completions during 2021 rose to 2,407, up from 2,247 in the pandemic impacted 2020, helping to push adjusted pre-tax profit to £107 million from 2020’2 £46 million.

First-half results to the end of April are scheduled for 14 June.

ii view:

Crest was started in 1963 and today employs around 700 people. Measures previously taken to battle the pandemic included reducing the size of its workforce and paying no dividend during the 2020 financial year. It resumed dividend payments in 2021. 

For investors, rising UK interest rates to battle inflation at a 30-year high, plus the cost-of-living crisis for consumers warrant consideration. Rising build costs and ongoing supply chain challenges should also not be forgotten. The estimated future dividend of just over 5% also sits below rivals such as Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.). 

On the upside, customer demand remains evident, and a price-to-net asset value ratio of under one contrasts with rivals such as Persimmon and Berkeley Group (LSE:BKG) at over 1.4 times, suggesting the shares may offer value. A market capitalisation of under £800 million could also make it a target in any future sector consolidation. In all, and while shareholder returns may not be sector leading, an estimated yield of over 5% remains attractive in an environment of still ultra-low interest rates. 

Positives: 

• Robust order book
• Attractive dividend yield (not guaranteed)

Negatives:

• Economic outlook uncertainty
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Buy