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Crest Nicholson facing margin pressure

Weakness at the top end of the market remains a worry
January 29, 2019

It is not easy to change the sales mix around overnight, so Crest Nicholson (CRST) is still feeling the pain of its exposure to the higher end of the housing market. 

IC TIP: Sell at 361.8p

Action was taken in the second half to boost volumes through bulk sales to private rental investors and registered home providers. However, this came at a cost, with operating margins down from 20.3 per cent to 16.7 per cent.

Margin pressure also came from continued build cost inflation at a time when average selling prices were broadly flat at £393,000. Steps have been taken to improve operational efficiency with the introduction of a standardised range of new designs that should reduce costs. The group is also accelerating off-site manufacture, which will reduce the number of on-site workers required.

Forward sales in mid-January were up 11 per cent from a year earlier at £639.4m, but with all the uncertainties thrown up by Brexit chief executive Patrick Bergin expects a difficult first half for 2019. The group is also trying to reduce its exposure to the capital by closing its London division, with existing projects taken on by other home counties divisions. A new division has been opened in the Midlands, increasing its exposure to areas where affordability is less of an issue.

On the land side, sales of land and commercial property generated £76.4m. Conversions from the strategic land bank were particularly strong, with 6,051 new plots added to the short-term land bank. However, given the current climate, growth ambitions have been reined in, with build rates and land expenditure both affected. Further land purchases will be made, notably to expand its Midlands division, with the emphasis on reducing the average selling price.

Analysts at Peel Hunt are forecasting adjusted pre-tax profits for the year to October 2019 of £132m and EPS of 41.2p (down from £170m and 53p in 2018).

CREST NICHOLSON (CRST)  
ORD PRICE:361.8pMARKET VALUE:£929m
TOUCH:361.8-363.4p12-MONTH HIGH:523pLOW: 275p
DIVIDEND YIELD:9.1%PE RATIO:6
NET ASSET VALUE:342pNET CASH£14.1m
Year to 31 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20140.6411739.314.3
20150.8115449.319.7
20161.0019562.027.6
20171.0420766.133
20181.1417655.733
% change+9-15-16-
Ex-div:21 Mar   
Payment:18 Apr