Crest Nicholson faces an uncertain future

Like so many of its peers, trading last year was mixed for housebuilder Crest Nicholson (CRST). The company posted a 62 per cent drop in full-year pre-tax profits after it was forced to spend £102.5mn on post-Grenfell fire safety costs. Meanwhile, revenue was up 15 per cent thanks to last year’s housing boom.

Just as its rivals have done, Crest Nicholson has listed these cladding costs as an exceptional item, but it is far from a one-off, having paid out for fire safety in 2019, 2020 and 2021 as well. And, although the company hopes that the money it has put aside will be enough to cover the remaining works, it admitted that “costs can be difficult to estimate and could be subject to considerable variability and government legislation, or regulation could further change, increasing the scope of legacy buildings and required remedial works”.

The underlying business looks strong in the results, with house sales up on the year to 31 October 2021, but that accounting period does not capture the subsequent downturn in the housing market due to higher interest rates. Forward sales are another matter. As of 13 January, they are down 29 per cent by value and 25 per cent by volume compared with the year before.

Cost inflation is also a concern as it could make both cladding fixes and regular business more expensive. The company says “inflation is forecast to have peaked”, but the short- to medium-term outlook still looks grim. Sell.

Last IC View: Hold, 273p, 14 Jun 2022