Conditional dealings started on 13 February, and the shares immediately attracted a hefty premium to the offer price, jumping over 20 per cent to 265p. Official dealings started this morning, and the group is well placed to benefit from the current favourable conditions for housebuilders, with around 95 per cent of its 16,959-plot short-term land bank focused on the more prosperous south of England. There are a further 12,623 plots in the strategic land bank, and total land holdings have an estimated gross development value of £6.8bn. Total completions last year rose 24 per cent from a year earlier to 1,882, and average selling prices were up from £224,000 to £230,000.
The success of the offering may encourage other housebuilders back into the market, the most obvious candidate being McCarthy & Stone. Late last year the group hired an investment bank to prepare for a potential flotation some time this year.
The specialist builder of retirement flats was sold in 2006 to a consortium that included Scottish entrepreneur Sir Tom Hunter and property investor brothers David and Simon Reuben. The sale, which saw the housebuilder fetch £1.1bn – 150 per cent of its net asset value – proved to be a master stroke in timing because, soon after, the market became so tough following the credit crunch that the original purchasers lost virtually all their money and a debt-for-equity swap in 2009 left Lloyds Bank with a 25 per cent stake. Last year, McCarthy delivered its strongest performance since 2007, with annual sales up 12 per cent at £257.7m and cash profits up 10 per cent from a year earlier at £39.9m.
An operating margin of 17.7 per cent puts Crest Nicholson up with the best of the housebuilders. And while other builders are still repairing margins as they work through legacy land bought before the credit crunch, Crest wrote down the value of its substantial land bank in 2009, so its margins have already fully recovered. That said, these levels should be sustained as a result of a fall in the overheads/sales ratio as extra volumes do not require much more overhead. Valuations on the 220p offer price put the shares on just 5.6 times 2015 EPS, according to Peel Hunt, with a price to book value of 0.74 2015 adjusted net tangible value, both metrics at a significant discount to other housebuilders, which still applies with the shares at 265p. And analysts at Liberum Capital are forecasting strong volume growth to boost operating profits by around 11 per cent a year up to 2016. All the major housebuilders are trading at a premium or close to net tangible assets, which suggests that Crest Nicholson has some catching up to do.