- Housebuilder manages to offer trading update that features no further bad news
- New management team continues to implement turnaround plan
- Macroeconomic environment starts to provide some help, rather than hindrance
- Company unveils new targets for the next five years
“Sometimes the best investments can be companies where things go from being awful to simply a little less bad and, in this context, the absence of any fresh downgrades to profit forecasts from the management team at Crest Nicholson represents a major step in the right direction,” says AJ Bell investment director Russ Mould.
“The shares look cheap relative to the value of the housebuilder’s net assets and if new chief executive Martyn Clark can put a stop to a long run of operational miscues and make the most of any assistance from cheaper mortgages and less restrictive planning processes then long-suffering shareholders may finally get some sort of reward for their patience.
Source: LSEG Refinitiv data
“Crest Nicholson’s recent profits have been dented by lower housing completions and higher input cost inflation.
Source: Company accounts, management guidance for 2025E. Financial year to October
“Additional costs relating to a problematic housing project in Surrey, a legal claim relating to another site back in 2021 and a small increase in costs relating to cladding and fire remediation have further punctured the stated profit figures.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to October
“These missteps added to a list of setbacks suffered by the firm, not all of which have been beyond its control. Granted, no-one saw the pandemic and lockdowns coming and higher interest – and mortgage – rates have hit demand at all of the quoted building firms, who have also had to wrestle with increased staff and raw material costs. But Crest Nicholson’s profit margins peaked in 2016, and profits hit a high in 2017, a good year or two before other builders began to feel wider pressures.
Source: Company accounts. Fiscal year to October
“Peter Truscott arrived as chief executive in 2019 to try and clean house, but his job was made much harder by Covid-19 and lockdowns. His successor, Martyn Clark, joined from Persimmon with the task of carrying on Mr Truscott’s work.
“Although Mr Clark continues to suggest there will be no great improvement in volume completions in the year to October 2025, at around the 1,800 mark, the new financial year is at least off to a solid enough start.
“The latest trading statement points to a sales rate per outlet per week of 0.61 in the ten weeks to mid-March, which represents an improvement on the 0.50 run rate in the equivalent period a year ago and the 0.48 average for the whole of the last financial year.
Source: Company accounts. *2025 for the ten weeks to 14 March 2025
“That helps to underpin forecasts of improved profits in the year to October 2025, thanks to lower costs and lower remediation and cladding expenses. It is also encouraging to hear Mr Clark note that cash generation is ahead of expectations in the early stages of the current financial year. A net cash pile has gradually dwindled and a fresh cash buffer would help to shelter the firm from any further macroeconomic turbulence – which cannot be ruled out – and also underpin the shares’ lowly valuation relative to their net asset value.
“Crest Nicholson has a long way to go before it deserves a rating of parity with book value, although attainment of management’s new five-year financial targets in 2029 could take it a long way there, especially if the company gets some help from the wider UK economic environment.
“For the moment, it remains the cheapest of the UK-listed builders on the basis of net asset value, but at least that shows the upside potential – something that had clearly not escaped the management of Bellway when the FTSE 250 index member launched an opportunistic bid last summer, even if they eventually withdrew given reported concerns over additional fire and cladding remediation costs.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, LSEG Refinitiv data
