ii view: Crest Nicholson details plunging profits but keeps dividend

Shares in this smaller housebuilder fell 36% in 2022 and are down again in 2023. We assess prospects.

First-half results to 30 April

• Revenue down 22% to £283 million
• Pre-tax profit down 60% to £21 million
• Interim dividend unchanged at 5.5p per share
• Net cash down 62% to £66 million

Chief executive Peter Truscott said:

“The economic case for buying a home remains compelling, but for many first time buyers the higher cost of borrowing and the cessation of Help to Buy are prohibitive to realising this ambition. If interest rates continue to rise, and remain elevated for a sustained period of time, this will undoubtedly exacerbate this issue even further and start to impact demand and confidence again. We continue to call on Government to recognise this challenge and provide further support to these potential homeowners.

“Our disciplined approach in continuing to acquire land during the period, supported by our strong balance sheet, has enabled us to add several high-quality sites in desirable locations that support our expansion plans and position us for future growth.”

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ii round-up:

Housebuilder Crest Nicholson Holdings (LSE:CRST) today reported double-digit falls in both sales and profits as higher interest rates, an end to the government’s ‘Help-to-Buy’ scheme and a cost-of-living crisis for consumers all hit hard. 

Sales for the half year to the end of April dropped by just over a fifth to £283 million, taking pre-tax profit down 60% to £21 million. Continued build cost inflation was now being met with the more benign sales environment as opposed to previously being offset by higher selling prices. 

Shares in the FTSE 250 company fell by more than 9% in UK trading having come into this latest news by almost 6% year-to-date. That’s similar to rivals Berkeley Group Holdings (The) (LSE:BKG) and Redrow (LSE:RDW) and in contrast to a marginal fall for the FTSE 250 index itself during 2023. 

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

Adjusted profit for the current full year to the end of October is still expected by management to broadly match the current analyst consensus estimate of £73.7 million. That’s down from £137.8 million made over its last financial year. 

An interim dividend payment of 5.5p per share remains unchanged from that paid a year ago, with the current full year dividend in total expected by management to stay unchanged from last year at 17p per share. 

Forward sales as of early June totalled 2,354 units or £597.4 million in value, down from 2,891 units and £814.9 million the same time last year with approximately 85% of current full year revenue covered.

Selective investment in land during the period had been made. Group net cash had averaged at £104 million during the period compared to £99 million in the prior first half. 

A full-year trading update is likely in November. 

ii view:

Founded in 1963, Crest today employs of around £580 million. It operates across the five established regional divisions of Eastern, South, South West, London and the Chilterns, recently opening a further two in Yorkshire and East Anglia. It also runs a dedicated Partnerships & Strategic Land (PSL) division, offering expertise in working with partners and managing the acquisition of strategic land. 

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For investors, elevated interest rates and a broader cost-of-living crisis for consumers is dampening demand. Government support schemes such as the ‘Help to Buy’ programme have been closed. Build costs and costs more generally remain elevated, readdress for cladding and fire issues across the wider industry continues to be navigated, while concerns regarding potential cuts or halts to dividends for the housebuilding sector broadly cast a shadow.  

On the upside, average selling prices for Crest have remained resilient, its geographical expansion to begin builds in Yorkshire and Norfolk has progressed, new selective land continues to be acquired, while a stock market value of under £600 million could leave it as a contender for any future sector consolidation.

There are good reasons for caution here, although a forecast dividend yield of over 7% may give income investors a reason to remain loyal.

Positives: 

• Selective land buying 
• Attractive dividend yield (not guaranteed)

Negatives:

• Economic outlook uncertainty
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Buy