UK housebuilder Crest Nicholson (CRST) reaffirmed full year pre-tax profit guidance of £73.7 million, in line with consensus forecasts, but warned it expects further falls in house prices as demand is crimped by higher borrowing costs.

The shares fell 6% to 235p, their worst day since January, leaving them around a tenth lower over the last year and nearly half the level they traded at in June 2021 before the Bank of England initiated its interest rate hiking cycle.

Sales for half to 30 April fell 22% to £282.7 million, while adjusted pre-tax profit slumped 60% to £20.9 million as operating margins halved to 7.8%.

WHAT DID THE COMPANY SAY?

CEO Peter Truscott commented: ‘We started our first half amidst the worst of the economic uncertainty arising from the September 2022 mini-budget. Rapidly falling consumer confidence and rising interest rates immediately translated into softer demand in the housing market.

‘If interest rates continue to rise, and remain elevated for a sustained period of time, this will undoubtedly start to impact demand and confidence again.’

Looking ahead, Crest Nicholson said it started the second half with a ‘robust’ forward sales position with 2,354 units at a gross development value of £597.4 million covering 85% of 2023 revenue.

The company acquired several ‘high quality’ sites during the half including 1,957 plots approved for purchase at a gross margin of 26.2% after sales and marketing costs.

The half year dividend was maintained at 5.5p per share and the total dividend for 2023 is expected to be in line with the prior year at 17p per share.

WHAT ARE THE EXPERTS SAYING?

Russ Mould, investment director at AJ Bell, commented: ‘After the jolt of the first annual fall in UK house prices in a decade, the warning of ‘storm clouds’ over the property market from the Royal Institution of Chartered Surveyors felt stark.

‘Housebuilder Crest Nicholson certainly seemed glum in its latest trading update. The call for further state support, particularly for first-time purchasers, may feel a bit rich given the housebuilding sector has benefited from ultra-low interest rates, rising property prices and the Help to Buy scheme for years, but it does reflect the tough outlook for the sector.

‘Higher rates for longer would depress demand, but whether providing incentives to stoke demand or letting property prices settle at levels which are more affordable is the right approach is open to question.’

Analysts at Peel Hunt said the uncertainty caused by rising interest rates puts industry forecasts at risk in the near term.

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (James Crux) own shares in AJ Bell.

LEARN MORE ABOUT CREST NICHOLSON

---