Crest Nicholson re-strategises

As we detailed in our recent sell tip, the housebuilder has been struggling to resurrect its sales model outside of a tricky London market. That was reflected in a 2.1 per cent dip in the average sales price, which combined with a sluggish open market and a dip in completions to weigh on profits.

The turnaround plan now begins in earnest. First comes self-help, as Crest targets a dip in administrative expenses from 6 to 5 per cent of sales. This, alongside more efficient selling and building practices, is expected to offset inflation from new building regulations and raw materials and improve the adjusted operating profit margin by a minimum of 250 basis points.

Another target arguably creates a headwind to higher profitability. To diversify its sources of revenue, management wants to boost bulk sales to between 15 and 20 per cent of the overall mix, which recently installed chief executive Peter Truscott said would lead to margin compression. The pay-off should be higher capital turn and a better return on capital employed, the target for which rises to 20 per cent.

Analysts at Canaccord expect adjusted earnings per share of 36.1p for the year to October 2020, rising to 39.9p in FY2021.