Canny Crest Nicholson is only housebuilding worth buying, says Shore Capital

Shore Capital reiterated its only 'buy' rating in the housebuilding sector on Crest Nicholson as the company released a half-year trading update.

The broker said Crest, the most "strategically ambitious" of the larger housebuilders due to its growing focus on the institutional private rented sector (PRS), was steaming towards it revenue target of £1bn by October and unit sales of 4,000 by the 2019 year end.

"In the nearer term revenue growth continues to be driven by the substantial increase in average selling price as the repositioning of location and price point of units sold is pushed ahead."

Unit sales rose by 7%, while the average selling price jumped 24% to £387,000 as the company deliberately slowed the sales rate, as sites had been selling too fast, to 0.87 per site per week, which is what would be expected for a South East biased business.

Forward sales were up 24%, though this was boosted by the institutional PRS sales now running at £85m versus £36m a year ago.

"This remain one of the key attractions to Crest, that it is aligning itself to this growing market segment in a way the other larger house builders remain unwilling to accept as necessary," wrote analyst Robin Hardy, who forecasts £197m PBT for the full year and estimates fair value for the shares of 607p.

"We like the desire to grow the business into a visibly under-supplied market where the opportunity to grow more aggressively is transparent yet most of the peer group still prefer to drift towards a cruise mode."

Hardy praised management's happiness to consume capital and hold a moderate geared position and possibly the most generous dividend in the sector.

"While the external pressures and risk on the new build market and sector remain and will keep the overall ratings for the house builders at low levels, and our view of the sector remains cautious, the argument that there is relative value in the sector’s midcaps versus the larger stocks remains."

He advocates switching out of or taking profits from larger house builders, to which Crest stands on a 15-20% price-to-earnings discount despite its higher rate of expected growth.