ii view: Crest Nicholson upgrade triggers fresh rally

The sales rate has jumped and a resumption of the dividend payment is pending. Buy, sell or hold? 

Trading update from 1 Nov to 22 March 2021

ii round-up:

Housebuilder Crest Nicholson (LSE:CRST) today upgraded its full-year profit expectation given a continued resilient performance and following supportive measures recently announced in the government’s budget.

Adjusted pre-tax profit for 2021 is now expected to come in at around £85 million compared with the current analyst consensus forecast of £74.3 million. 

Crest Nicholson shares rose by more than 5% in UK trading, leaving them at more than double the price of their pandemic low in March last year. Shares for larger rival Barratt's (LSE:BDEV) are up by a similar amount. Shares for London focused and overseas buyer dominant Berkeley Group (LSE:BKG) are up by less than 50%. 

Sales per outlet week (SPOW) at Crest had reached 0.81 over the last eight weeks and during the government’s stamp duty holiday, up from 0.59 over the full-year 2020 to the end of October. 

Measures announced in the early March UK Budget included an extension of the temporary stamp duty holiday to the end of June, plus a new scheme where the government guarantees 95% loan-to-value mortgages to help first-time buyers on to the property ladder.

As of 22 March, Crest’s order book was over 70% covered for the current full year, up from 55% in late January when it reported full-year 2020 results. This includes sales that will legally complete after the scheduled downgrade to the Help to Buy scheme and the stamp duty holiday extension, highlighting customers' confidence in the market according to Crest management. 

Full-year 2020 results to the end of October saw it report a 23% fall in build completions to 2,247, with a reported pre-tax loss of £13.5 million made. Crest previously flagged an expected return to dividend payments come the current first half results to the end of April on the 23 June.

ii view:

Crest builds a mixture of houses, flats, and some commercial premises across the southern half of England and the Midlands. Previous measures taken to battle the pandemic included reducing the size of its workforce and paying no dividend during the 2020 financial year, having paid a total annual dividend of 33p per share previously. 

For investors, a forecast dividend yield in the region of 2.5% is below the 3%-plus estimates for rivals such as Taylor Wimpey (LSE:TW.) and Barratts. Current highly supportive government measures are also not guaranteed in the years ahead as high national debt is tackled. Interest rates are also at historical lows, suggesting a future upward move at some point. 

That said, temporary government measures introduced after the 2008 financial crisis, such as the Help to Buy scheme, are still in operation. A resumption of dividend payments is pending and consumer demand, aided by the government, now appears highly robust. In all, while better value may be available elsewhere in the sector, trading momentum at Crest looks to have been firmly re-established.  

Positives: 

• Robust order book
• Dividend payment due to restart

Negatives:

• Most government market support measures are meant to be temporary
• Interest rates at historical lows

The average rating of stock market analysts:

Hold