Housebuilder Crest Nicholson’s (CRST) share price de-rating amid anticipated margin erosion in 2018 has been overdone according to Liberum analyst Charlie Campbell who says now is the time to buy the stock.
While you could argue that Campbell is somewhat biased as Crest Nicholson is a corporate client of Liberum, he does make some good points worth considering.
Over the last year, shares in Crest Nicholson have fallen 23.6% to 408p. Based on Liberum estimates, the shares trade on a cheap forecast 5.8 times earnings per share in 2019.
Campbell argues profit growth is expected to resume as margins stabilise thanks to a shift away from upper-end products, a geographical shift towards the Midlands and a cut in building costs.
Pre-tax profit is anticipated to fall from £207m to £203m in the year to 31 October 2018, before rising to £220m in 2019 and £238m the year after.
The widely publicised housing shortage is expected to boost the housebuilder, particularly in the South West and the Midlands which it covers, due to household and employment growth.
‘Household growth in Crest Nicholson's target areas is expected to be twice as fast as in the rest of Great Britain,’ comments Campbell.
House prices in the South East, especially London, have come under pressure this year. Campbell believes this slowdown is ‘mid-cycle’ and not an ‘end-cycle phenomenon’.
He says offering incentives or lower prices to seal more deals is the right strategy for housebuilders keen to move people in.
The positive broker note has stirred up interest in the stock today, lifting the housebuilder by 1.8% to 406.2p.
Campbell has a 528p price target, suggesting you could make nearly 30% from the shares over the next 12 months if the analyst’s bull case proves to be correct.
It is also worth considering the potential income from the stock. Campbell forecasts 34.5p dividend per share for the year to October 2019, implying a 8.5% yield off the current share price.
