ii view: Crest Nicholson shares down 18% after falling into the red

Hit by last year’s election and Covid-19, shares of this housebuilder have tumbled in 2020.

Half-year results to 30 April 2020

• Revenue down 52% to £240 million
• Loss before tax of £51 million, down from a profit of £64 million last year
• Net debt including land creditors up 22% to £317 million
• No dividend payment

Guidance: 

• Expects profit in second half to be significantly higher than the first
• Expects full-year adjusted profit before tax of between £35 and £45 million

Chief executive Peter Truscott said:

"Despite a difficult first half performance we have made excellent progress implementing our updated strategy. We are ahead of our own expectations in a number of our strategic priorities and that has been delivered against the backdrop of Covid-19. 

"Before lockdown the business was performing well and trading in line with our expectations. We were continuing to recognise further improvements to margin in our current developments and short-term land portfolio. 

"However, we cannot ignore the risks that Covid-19 presents to the UK housing market even if we cannot predict with certainty what the impact of those risks will be. Therefore, we have adapted our strategy by deferring the planned opening of an additional division and targeting further reductions in overheads."

ii round-up:

Housebuilder Crest Nicholson (LSE:CRST) today reported a first-half loss of £51 million, hit by a mix of General Election uncertainty and Covid-19 disruption. 

While profit for the second half of the year is expected to be significantly higher given a return to operations following the lockdown, full-year profit is now expected to be less than half of 2019’s £121 million. 

Crest Nicholson shares fell by 18% in afternoon UK trading, having nearly halved year-to-date. Luxury development builder Berkeley Group (LSE:BKG) shares are down by nearly 15% in 2020, while Barratt Developments (LSE:BDEV) shares have fallen by nearly a third. 

Completed homes for the half year to the end of April fell by nearly 35% at Crest to 775. Sites and sales offices closed on 9 April. A phased re-opening began from 18 May. 

Crest builds houses and flats across the southern half of England and the Midlands. Under measures to conserve cash during the pandemic, the group previously furloughed three-quarters of its staff and cancelled the final 2019 dividend of 21.8p per share. It also made a £300 million funds provision under the Bank of England’s Corporate Financing Facility (CCFF). 

Alongside full-year 2019 results back in January, management also outlined an updated strategy and financial targets. A focus on operational efficiency and the subsequent adjustment of divisions has today seen it announcing the loss of 130 jobs. 

ii view:

Founded in 1963, Crest today builds a mixture of houses, flats, and some commercial premises as part of its larger developments. New goals to 2022 now see it targeting 3,500 annual completions, up from 2,912 in 2019, with site numbers increasing to a minimum of 70 compared to 59 last year. Administrative expenses equating to 5% of sales, down from 6% in 2019, and a reduction in debt, are also in management sights. 

For investors, the cancellation of the final 2019 dividend, although arguably sensible, removes a key shareholder attraction. Covid-19 and its hit to both this year’s profit and previously outlined financial targets, also offer significant reason for caution. More favourably, action to conserve cash and the confidence to offer a full-year profit estimate – unlike its rivals – deserves some credit. For now, and given the degree of outlook uncertainty, it is understandable why investors may wish to wait for evidence of recovery in the housing market before stake-building.

Positives: 

• £30 million of further build cost savings identified
• Best sales week for the rolling 12-month period in the week before UK lockdown announced

Negatives:

• Suspended dividend payment
• Government’s ‘Help to Buy’ scheme due to end in 2023

The average rating of stock market analysts:

Hold