Mid cap housebuilder Crest Nicholson (CRST) is slammed by the market as it guides for margins to be at the bottom end of full year guidance. That implies between 18% and 20%. Its shares slump 11.9% to 435p.
Sector peers also trade lower in its wake, including Persimmon (PSN) down 1.1% to £27.86 and Redrow (RDW) off 1.8% to 635.5p.
Crest attributes the pressure on margins to a 3% to 5% inflation in build costs and flat pricing. The company’s average selling prices of £439,000 are towards the top end and the company says sales at these price points will ‘continue to be impacted by a slow second-hand market’.
QUESTION MARKS FOR THE SECTOR
AJ Bell investment director Russ Mould says: ‘There have been question marks over whether the housebuilders can maintain or even improve on their strong margin performance of late and today's update from Crest Nicholson will only reinforce those doubts.
‘Lower levels of profitability could have implications for future dividends if the margin trend worsens.’
NEGATIVE IMPLICATIONS
Shore Capital analyst Robin Hardy also thinks there could be negative implications for the wider sector.
‘We have cautioned that the slow second-hand market and the broad loss of house price momentum was likely to drag on the new homes sector which has been very materially strong in demand terms than the existing homes market.
‘New homes take their prices from the existing homes market and although demand may be strong, pricing cannot divorce from any pressures in the existing homes market. Therefore, while the market may choose to see this a problem unique to Crest's operating profile, we would see this an emerging issue for the whole sector.’
Investors will get a chance to see if this is a more widespread issue when Persimmon updates on trading 5 July.
