Interactive Investor

ii view: slump into red topples Crest Nicholson shares

Operational issues and a tough backdrop for the UK housing market have put this housebuilder on the backfoot. Buy, sell, or hold?

13th June 2024 15:45

by Keith Bowman from interactive investor

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First-half results to 30 April

  • Revenue down 9% to £256 million
  • Adjusted pre-tax profit down 87% to £2.6 million
  • Statutory pre-tax loss of £31 million, down from profit of £28.4 million H1 last year
  • Interim dividend of 1p, down from 5.5p a year ago
  • Net debt of £9 million, down from net cash of £66 million in H1 last year

Co chief executive Peter Truscott said:

"We have made some important operational progress in the first half of the year against our strategic priorities. We are on track to achieve a five-star customer service rating, have a clear and comprehensive plan to resolve the legacy and operational issues, and continue to focus on maintaining a strong balance sheet.

"The Group is continuing to focus on completing its low margin sites, with FY23 and FY24 being the peak years of impact and the majority of the remainder expected to be traded through during FY25. 

“Going forward, the Group will benefit from its high-quality, higher margin land portfolio, and with an increased commitment to operational efficiency and control, is well-positioned to capture growth opportunities as market conditions improve."

ii round-up:

Housebuilder Crest Nicholson Holdings (LSE:CRST) today detailed a move into the red as it continued to navigate a tough housing market and legacy build issues, with recent trading also hindered by interest rate and general election uncertainty. 

A one-tenth decline in sales to £256 million and charges of £31 million for remediation build works triggered a first half pre-tax loss of £31 million compared with a profit of £28 million last year. The interim dividend was slashed to 1p from 5.5p a year ago.   

Shares in  the FTSE 250 company slumped 11% in UK trading having come into this latest news up around 10% year-to-date. That’s similar to mid-sized rival Bellway (LSE:BWY), although comfortably less than a 36% gain by affordable homes builder Vistry Group (LSE:VTY). The FTSE 250 index is up 4% in 2024.

Crest’s adjusted pre-tax profit for the full year is now forecast to come in at between £22 million and £29 million, comfortably below analyst hopes of close to £39 million and down from last year’s £41 million. 

A widened scope for its now completed legacy build issue review took the overall charge to £31 million from a previous estimate of £15 million. 

Former chief commercial executive at rival Persimmon (LSE:PSN), Martyn Clark, becomes sole chief executive from tomorrow when Peter Truscott steps down. 

Accompanying comments on current trading flagged a slight softening in sales since Easter given volatile mortgage rates and expectations for a rate cut later in the year rather than sooner, as well as the pending general election.

Crest Nicholson sales for the half year to late April came in at 0.47 per outlet per week, down from 0.54 for the first half of last year. 

Crest’s next trading update is likely mid-to-late August.  

ii view:

Started in 1963, Crest Nicholson today builds a mixture of houses, flats, and some commercial premises largely across the southern half of England and the Midlands. Expected completions this financial year of 1,800 to 1,900 are down from last year’s 2,020 builds and the prior year’s 2,734. 

For investors, legacy build issues continue to feature which could be affecting customer demand, and the general backdrop for customers remains challenging given higher borrowing costs. A UK election offers further uncertainty, while the interim dividend has been slashed, leaving the likely annual total payment significantly lower.  

To the upside, the new chief executive brings nine years of senior experience from rival Persimmon. Prices for building materials are expected to about flat over this current financial year, potential UK interest rate cuts later this year will likely aid customer demand, while the possibility of further industry consolidation following Barratt Developments (LSE:BDEV)' recent bid for Redrow (LSE:RDW) is worth remembering. 

For now, and while its existing land portfolio and a new chief executive offer hope, many investors are likely to await signs of recovery before taking any interest.  

Positives: 

  • Resilient selling prices 
  • Hopes for reduced interest rates

Negatives:

  • Legacy redress costs
  • Cut dividend payment

The average rating of stock market analysts:

Strong hold

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