- 2023 sales and earnings down sharply
- 2024 order book just over half-covered
- Buyer confidence seen recovering
Residential developer Crest Nicholson (CRST) posted a significant drop in 2023 earnings due to a weak sales market but said house-buyer confidence had ‘gradually returned’ last year due to falling mortgage rates, leaving the shares trading sideways at 205p at lunchtime.
The FTSE 250 firm also announced chief executive Peter Truscott, who took over the top job in 2019 and led the firm through the pandemic, restructuring its operations to cope with the change in market conditions, would be stepping down later in the year.
His replacement is Martyn Clark, currently chief commercial officer at FTSE 100 housebuilder Persimmon (PSN).
FAREWELL TO 2023
Along with the rest of the sector, Crest Nicholson had a fairly torrid 2023 due to the collapse in buyer sentiment following the ‘mini budget’ in late 2022 and the surge in mortgage rates.
Revenue for the year was down 28% to £657.5 million while completions were down 26% from 2,734 units to 2,020 units as private home sales collapsed and weekly reservations dropped to 0.52 per outlet.
Due to the firm’s operational gearing and several additional costs, adjusted pre-tax profit was down 70% from £137.8 million to just £41.4 million.
Costs included £13 million for a legal claim recently received relating to fire damage in 2021 at a low-rise bespoke apartment scheme as well as a further £5.5 million for cost overruns on top of the £11 million already identified at the Brightwells Yard development in Farnham.
BRIGHTER SECOND HALF
The firm has started 2024 with a forward position of 1,732 units with a GDV (gross development value) of around £435 million and its order book 52% covered for the year.
It expects the housing market to remain challenging with interest rates staying high until inflation falls to its target level and the absence of government help for first-time buyers impacting affordability.
However, it noted despite the normal seasonal lull over the year-end it had seen an uptick in customer activity and it expected trading conditions to continue improving through the year thanks to its strong pipeline of PRS (private rented sector) projects.
‘Crest Nicholson’s results for the year to October 2023 contained no new, nasty surprises as last week’s profit warning had already lowered expectations, so its share price has hardly flinched in the face of a sharp drop in completions, sales and profits, commented AJ Bell investment director Russ Mould.
‘A net cash balance sheet should see the builder through the current downturn and, relative to the value of the company’s assets, Crest Nicholson’s shares are the cheapest of any of the big, quoted housebuilders. For the shares to really kick higher, however, investors may want to see interest cuts from the Bank of England and an end to the operational miscues which have dogged the company for several years.’
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor (James Crux) own shares in AJ Bell.
