Redburn downgrades Crest Nicholson after 'torrid' 2018

Redburn cut its stance on Crest Nicholson to 'neutral' from 'buy' on Thursday as part of a broader note on UK housebuilders.

It said that Crest, its only recommendation change, had a "torrid" 2018 operationally and there is no notable respite in sight, at least relative to the sector.

"The beginning of the group’s FY19 (from the end of October) coincided with the escalation of UK political tension, and starting order-book support was limited. Sales outside of Help to Buy's price cap (£600,000+) are set to stay at up to 25% of revenues this year and will likely remain tough.

"In addition, we have updated our incentive tracker, looking at the group’s website - this shows that 84% of the group’s sites are actively advertising incentives, up from 57% in August and 31% in March."

Redburn also said the jury is out on the quality of the group's recent land buying. "While we accept the price-point issue is a general top-down challenge, it does appear Crest has been faring less well than other similarly priced peers - notably Berkeley (outside London), Countryside and even Redrow," it said.

While it's not a problem in its own right, the balance sheet is the least strong in the sector when you consider the combination of average debt and land creditor usage, it argued.

"Our buy Crest has been value-based and, barring a major downturn, it is hard to argue the shares are expensive. Indeed, we see fundamental upside of 28%. But we are held back by the risks and at the very least find it hard to see why investors should opt for Crest over mid-cap peers Bellway and Redrow, both of which offer more upside with less risk."

Redburn said Persimmon remains its top pick thanks to its price point, margins and net cash. Meanwhile, it remains a buyer of Barratt, Bellway, Redrow and Taylor Wimpey, with Bovis and Berkeley remaining at 'neutral'.

Redburn has a 455p price target on Crest.

On the sector more broadly, Redburn was upbeat. "Popular commentary continues to paint the UK housing market as weak, but we view activity as remarkably resilient considering Brexit uncertainties. This reflects solid underlying fundamentals (employment, pent-up demand, policy, credit and supply), which look set to persist," it said.

At 1245 GMT, Crest shares were down 1.9% to 348.60p.