Crest Nicholson craters as flat house prices, rising costs hit margins

Housebuilder Crest Nicholson reported strong sales growth for the first half of the year but profit margins are being squeezed by the softer housing market, sending its shares to 16-month lows.

Directors warned that operating margins for the full year and next year are expected to be at the bottom end of its 18-20% guided range, reflecting generally flat pricing as build costs rose 3-4%.

In a trading update covering the six months to 30 April, average selling prices rose 5% to £439,000 thanks to a change in mix of sales, while 1,251 houses and flats were completed, up 17.6% on the same period last year.

Sales rates in the first half fell to 0.72 per outlet week from 0.81 in the previous year, while forward orders up 11%, with units up 5% to 2,079 and forward sales up 6% to £441m.

Management anticipates revenue growth to be over 15% for the full year, helped by private rented sector sales.

Chief executive Patrick Bergin said the group would increase the number of homes built and "carries positive momentum" into the second half, with outlet growth up 6% to 52.

"Flat pricing has had a negative impact on margins, but volumes in the new build housing market continue to be robust and Crest Nicholson remains well positioned to grow volumes and deliver the homes that the UK needs, while continuing to focus on delivering strong returns for shareholders."

CRST shares fell 12% to 436.6p, their lowest since November 2016.

Broker Canccord said the new margin guidance was around 100 basis points below where consensus forecast was, with

"Higher site numbers support the group's revenue targets with the forward order book up strongly, and operationally the group looks like it has delivered well in terms of site numbers and completions delivery, but it is clearly seeing margins squeezed. We recently cut our margins estimates to 19%, but margins will be lower than this for the current financial year as well at next year," analysts said.

"We would expect consensus to come back by mid-single digit percentage rates; with flat PBT for FY2018 against the previous year looking likely now. While the shares have been de-rated and revenue targets remain on track, the shares are likely to remain at a discount to the wider sector due to the margins performance and the likelihood that they may come under their medium-term targeted £1.4bn revenue."