Insider: more skin in the game at Crest Nicholson and Arena Events

More directors have been buying shares in anticipation of a recovery out of Covid-19 disruption.

A significant week for the housebuilding industry has boosted spirits at Crest Nicholson (LSE:CRST), where directors have also been buying the company's shares at rock-bottom prices.

Chancellor Rishi Sunak's stamp duty holiday on properties up to £500,000 should benefit the London and southern England builder, given that its average selling price is around £350,000.

Shares rose 11% last week to 220.8p, providing CEO Peter Truscott with an early paper profit after he bought £181,000 worth of Crest stock at 201.7p in the week prior to speculation about Sunak's initiative to support the housing market out of the Covid-19 lockdown.

His purchase and others by chairman Iain Ferguson and finance boss Duncan Cooper at around the same time followed the company's half-year results, when Crest became the first major housebuilder to write down the value of assets in the wake of the virus.

Profits for the six months to April 30 also slid 93% to £4.5 million, with the pandemic-related headlines masking some of the progress being made on an updated turnaround strategy to concentrate on cashflow and dividends.

Truscott, a Taylor Wimpey veteran who joined Crest in September after four years at the helm of Galliford Try, has been keen to step up focus on operational efficiency and rebuild trust in the company's performance after a run of profit warnings and share price falls.

On arriving at the company, his first impressions included a “bespoke mindset to house type design and specification”, leading to inefficiencies in procurement. Faced with the additional impact of Covid-19 uncertainty, Truscott has gone on to defer the opening of a new Hampshire-based Southern Counties division and also targeted further reductions in overheads.

He said last month:

“Taking decisive action now will ensure Crest Nicholson is able to flourish in whatever market conditions may emerge in the future including if the market quickly returns to growth."

Financial targets published in Truscott's maiden annual results in January included 3,500 home completions by the 2022 financial year, compared with 2,912 in 2019. Truscott is also looking for a minimum 250 basis points improvement in operating margin from 12.2%, plus a return on capital employed in the region of 20%, up from 15.9% last year.

UBS analyst Greg Kuglitsch pointed out last month that this current margin weakness left Crest more susceptible to land write-downs. The shares tumbled 18% on June 24 following exceptional items worth £51.2 million, half of which was based around management assumptions for sales price reductions of 7.5% in residential and 32% in commercial.

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Crest shares have also been disproportionately affected by Brexit sentiment, with demand in Greater London and higher price points in the south more likely to be swayed by political and economic uncertainty. Last year, the company said the high cost of stamp duty had been  weighing on the decision making of many home buyers.

This will not be a factor up until March 31, given Sunak's decision to increase the stamp duty threshold from £125,000. This has triggered a recovery for shares, although Crest remains a long way short of the 519p seen in early February and even the 311p in March when Truscott bought £93,000 worth of stock. Shares hit an all-time low of 164.6p in early April. 

Arena Events

Another company whose directors have been buying shares in anticipation of a recovery out of Covid-19 disruption has been AIM-listed Arena Events (LSE:ARE).

Instead of preparing to deliver grandstands and structures to the Tokyo Olympics or Wimbledon tennis championships, the company spent the pandemic building temporary hospitals, drive-through test centres and other health facilities around the world.

Arena, whose services were last used in a sporting context at the Cheltenham Races and the US Super Bowl, had been looking forward to a record performance in the 2020/21 financial year before the pandemic brought a halt to global events.

It acted swiftly to bolster its balance sheet by raising £9.5 million in March after a placing of new shares saw Saudi Arabian investment company TasHeel become the single largest shareholder at 24.2%.

Chief executive Greg Lawless, who holds a 3.8% stake, participated in that fundraising and also bought £21,200 of shares at 5.3p after the annual results in early July.

A person connected to Ken Hanna, who chairs both Arena and temporary power specialist Aggreko, bought £52,000 worth of shares at 6.5p on Tuesday, while new chief financial officer Steve Trowbridge has also picked up £10,000 of stock at 5.4p.

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Lawless became CEO in 2011, following the acquisition of Arena Structures and Arena Seating to form Arena Group in 2007. Arena joined AIM in July 2017, when it raised £60 million towards expansion.

The shares launched at 55p, but halved between 2018 and February of this year and fell as low as low as 4.5p at the height of the pandemic.

Arena, however, benefits from some long-established multi-year contracts, including for Wimbledon and golf's Open Championship going back seven and four decades respectively.

Hanna said in the results:

“We do not know when the event world will return to normal but when it does, Arena is well placed to continue as an industry leader.”