ii view: housebuilder Crest Nicholson flags lower profits

Trading update

• Now expects full-year adjusted profit of £50 million, down from a previous estimate of £74 million
• Continues to expect the total full-year dividend to stay unchanged from last year at 17p per share

ii round-up:

Housebuilder Crest Nicholson (LSE:CRST) today lowered its full-year profit expectation as higher borrowing costs and a previous end to the government’s Help-to-Buy scheme hindered buyers. 

Adjusted pre-tax profit for the full-year to the end of October is now expected to come in at around £50 million, down from its previous forecast of approximately £74 million and way down from the prior full-year’s outcome of £137.8 million.

Shares for the FTSE 250 company fell by more than 10% in early UK trading having come into this latest news down by close to a fifth year-to-date. That’s similar to larger rival Persimmon (LSE:PSN) and against a 4% retreat for the 250 index itself during 2023. 

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Crest constructs a mix of houses, flats and some commercial premises largely across the southern half of England and the Midlands.

Despite the profit warning, Crest still expects to keep its total dividend payment for the current financial year unchanged from that paid last year at 17p per share. 

Crest sales had been trending at 0.25 per site per week in the seven weeks to 18 August, down from management’s second-half forecast of 0.50 at its half-year results in June. 

Management actions to address the current situation include cutting costs, reducing land-buying activity and negotiating several bulk deals on appropriate commercial terms with partners to support future volume delivery. 

Crest’s next scheduled trading update is due on 16 November. 

ii view:

Started in 1963, in its last financial year to the end of October 2022 Crest completed 2,734 builds, up almost 14% over 2021. Competing against rivals such as Redrow (LSE:RDW) and Bellway (LSE:BWY), Crest operates across the seven regional divisions of Eastern, South, Southwest, London, the Chilterns and the relatively new Yorkshire area, with its recently opened East Anglia division now being merged with the existing Eastern division under cost-saving plans. It also runs a dedicated Partnerships & Strategic Land (PSL) division, offering expertise in working with partners and managing the acquisition of strategic land. 

For investors, elevated borrowing costs with interest rates potentially going yet higher are dampening buyer demand. Government support schemes such as the Help-to-Buy programme have been closed. Build costs, and costs more generally, remain elevated, redress for cladding and fire issues across the wider industry continue to be navigated, while concerns regarding potential cuts or halts to dividends for housebuilders in general now persist. 

• Stockwatch: this housebuilder’s discount and dividend are attractive
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More favourably, average selling prices for Crest have stayed resilient given a broad backdrop of limited housing supply. Management actions such as cutting costs are being pursued, several sites in desirable locations were previously acquired allowing land buying to be reduced, while a stock market value of under £500 million could leave it as a contender for any sector consolidation going forward.

For now, and while a dividend yield of over 8% (not guaranteed) may keep existing income-oriented investors onboard, potential new investors are likely to await evidence of a trading turnaround before taking any action.

Positives: 

• Resilient selling prices 
• Attractive dividend yield (not guaranteed)

Negatives:

• Economic outlook uncertainty
• Previously halted dividends under the pandemic

The average rating of stock market analysts:

Cautious buy