Crest Nicholson raids rival for CEO role as profits plunge

It makes sense for companies to dovetail announcements. Putting a brave face on it, housebuilder Crest Nicholson's (CRST) revealed it had poached its rival Persimmon's (PSN) chief commercial officer to replace its retiring chief executive on the same morning it posted a slump in sales and profits in its results for the year to 31 October.

Outgoing boss Peter Truscott, who will step down later in the year and hand the reins over to Persimmon's chief commercial officer Martyn Clark, no doubt would have wanted to share better news in what will probably be his final set of results at the company. As it was, reduced buyer demand from higher interest rates drove pre-tax profit down 29.6 per cent while revenue sank 28 per cent. Adjust for the fact the company paid out a higher cladding bill in the previous reporting period than this one, and pre-tax profit cratered 70 per cent.

The market reaction to this was a shoulder shrug, likely because the company warned investors about the miserable trading conditions in a trading update early this month, after which shares tumbled 6 per cent.

Higher interest rates and the resultant subduing of the housing market have hit all housebuilders, but Crest is faring worse than its peers. Clark's soon-to-be-former-employer Persimmon expects 2023's full-year results to be ahead of guidance, and Taylor Wimpey (TW.) expects its results to be at the top end of forecasts. 

All three have adopted the same hunkering down strategy during this downturn, cutting production while raising prices, but the move has not paid off for Crest, suggesting it is not as well-run. While a new man in charge could change this, that is far from a guarantee, especially when Crest has less net cash to play with than last year for reinvesting into the business. 

It does have close to 34,000 homes in its land bank, which should last it well over a decade at its current pace of delivery. However, investors might question why Crest has been unable or unwilling to deliver homes as fast as some of its rivals with such a vast supply of potential homes in reserve. The implication could be that demand for its offering is not as strong.

The dividend yield does make this stock enticing, even with the flattening of shareholder payouts this year. But what makes us circumspect is the high price-to-earnings ratio. Other, better-performing housebuilders are available for a lower multiple. Sell.

Last IC view: Sell, 234p, 08 Jun 2023