ii view: income play Crest Nicholson expands its empire

Shares for this UK housebuilder are down by around a quarter year-to-date. We assess prospects. 

First-half trading to 30 April

• Revenue up 12% to £364 million
• Adjusted pre-tax profit up 45% to £52.5 million
• Interim dividend up 34% to 5.5p per share
• Net cash up a third to £173 million

Guidance:

• Expects full-year adjusted pre-tax profit of between £135 million to £140 million

Chief executive Peter Truscott said:

“We are pleased to have reached a resolution with the Government by signing the Building Safety Pledge. We hope this now provides comfort and assurance to affected residents and stakeholders. It also allows the Group to move forward in remediating the affected buildings directly or through another party as soon as possible.”

ii round-up:

Crest Nicholson (LSE:CRST) is a UK housebuilder and a constituent of the FTSE 250. 

It builds a mixture of houses, flats, and some commercial premises across the southern half of England and the Midlands.

For a round-up of these latest results, please click here.

ii view:

Crest was started in 1963 and today employs around 700 people. During its last full financial year to the end of October it completed 2,407 builds, up from 2020’s pandemic hit 2,247. Measures previously taken to battle the pandemic included reducing the size of its workforce and paying no dividend during the 2020 financial year. It resumed dividend payments in 2021. The rollout of a new house type range is on track and it expects three-quarters of its private open market houses to be delivered using the range in 2022. 

For investors, rising UK interest rates to try and tame inflation at a 40-year high cannot be overlooked. An uncertain economic outlook also adds risk for house buyers, while rising build costs and ongoing supply chain issues offer challenges. An estimated future dividend yield of just over 5% is also less than rivals like Taylor Wimpey (LSE:TW.) and Barratt Developments (LSE:BDEV). 

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More favourably, Crest's geographical expansion in Yorkshire and East Anglia continues, and evidence of customer demands remains, with its sales rate marginally higher year-over-year. A stock market value of under £800 million could also leave it as a contender for any sector consolidation going forward. For now, and with management’s full-year profit guidance now upgraded and the shares still sat on a far from derisory 5%-plus forecast dividend yield, investors may wish to remain patient.  

Positives: 

• Robust order book
• Attractive dividend yield (not guaranteed)

Negatives:

• Economic outlook uncertainty
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Strong buy