Join our community of smart investors

Crest Nicholson's results are not what they seem

The housebuilder faces the possibility of more cladding costs, a housing market slowdown and private equity interest
June 14, 2022
  • £105mn towards the government’s cladding removal fund
  • Vulnerable to a private equity takeover?

Shares in Crest Nicholson (CRST) soared 10 per cent on results day, which seems strange considering it posted a £52.5mn loss in its half-year results. However, there’s a lot more going on at this housebuilder than it first appears.

For starters, the loss can be almost entirely explained by the company confirming in its results that it will pay £105mn towards the government’s cladding removal fund. The figure is almost bang in the middle of Crest’s £80mn to £120mn estimate after it signed the Building Safety Pledge in April. All of this is in addition to the £47.8mn the housebuilder has already spent on cladding remediation since the financial year ending October 2019. Take this cost out of the equation, and Crest is looking quite healthy. Revenue – and revenue forecasts – are on the rise, dividend per share is up and housing completions are up too.

Another reason for investors’ excitement around Crest is likely to be Peel Hunt observing that the company could be vulnerable to a private equity takeover. The news comes amid a slew of take-private deals in the listed property sector, with Countryside Partnerships (CSP) becoming the latest housebuilder to receive an unsolicited bid from private equity. The housebuilder initially rejected the deal as one that “materially undervalued” it but this week gave in to shareholder pressure and agreed to put itself up for sale. Given this backdrop, Peel Hunt argued that Crest is most likely to be next in light of the fact that – at the time – it was trading at a 29 per cent discount to tangible net asset value.

However, investors snapping up shares banking on a private equity takeover may want to consider what they are buying. A take-private deal is by no means a certainty, and any investor should be aware that the housebuilder may yet need to cough up more cash to deal with cladding, which could well be why it’s sitting on £170mn in net cash just in case. What’s more, there are reasons to be fearful of a wider housing market slowdown after the Royal Institution of Chartered Surveyors reported a drop in buyer interest due to the cost of living crisis. Savills’ forecast that mortgage payments as a percentage of income on a 25-year repayment mortgage will hit their highest level since 2010 by the end of 2022 is also likely to hurt demand.

Crest itself may be doing well, but it is operating under some tough conditions over which it has little control. Hold.

Last IC view: Hold, 353p, 19 Jan 2022

CREST NICHOLSON (CRST)  
ORD PRICE:273pMARKET VALUE:£ 701mn
TOUCH:272.8p-274.4p12-MONTH HIGH:453pLOW: 229p
DIVIDEND YIELD:5.5%PE RATIO:NA
NET ASSET VALUE:329pNET CASH:£170mn
Half-year to 30 AprTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202132536.311.34.10
2022364-52.5-16.55.50
% change+12--+34
Ex-div:22 Sep   
Payment:13 Oct