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Crest Nicholson warns of margin pressure

Revenue and sales continue to grow, but margins on higher-priced houses are under pressure
May 16, 2018

Margin growth is at an end for now, according to housebuilder Crest Nicholson (CRST), prompting a double-digit slide in the shares on the morning of its first-half update. With high exposure to expensive houses, where selling price inflation has contracted, Crest still has to contend with build cost inflation of 3-4 per cent. Sales are still expected to grow, however, helped by a 6 per cent increase in the number of sales outlets.

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It is still too early to tell whether the lack of margin growth will apply to the other housebuilders. Crest is different in that almost a third of the houses it builds command an average selling price of over £600,000, taking them out of the reach of Help to Buy. In fact, sales at this level have a greater interdependence on activity in the second-hand market, which has continued to show a steady decline in transactional volume.

Crest has admitted that margins for the year to October 2018 will be at the bottom end of the 18-20 per cent target range and down from 20.3 per cent in the previous year. The focus now will be on addressing the cost base and the overall efficiency of its operations.