Crest Nicholson guidance disappoints but forward sales impress

Housebuilder Crest Nicholson reported solid growth in sales and selling prices and strong forward sales, though profits for the year may come in at the lower end of guidance.

As the company pursues a strategy of "disciplined growth", it completed 2,935 units in the year to 31 October, up 2.3% on last year, with open-market average selling prices up 5.4% to £391,000.

Forward sales were up 13.6% on last year at £391.4m, with units up 12.6% to 1,997, should provide a good start for the new financial year.

In October the number of outlets totalled 55, increasing 12.2% on the same period last year, up from the average of 51 through the year. The underlying sales rates for the year averaged 0.77 sales per outlet week, down from 0.81 last year, which was said to reflect the increase in the group's average selling prices and, to some extent, the softer market in Central London.

Management anticipate growth in revenues across all tenures and reported sales for the year to be roughly 6-7% higher.

EBIT margins are expected to be "at the top end of the 18% to 20% range".

Ahead of Chancellor Philip Hammond's Budget, where measures are expected to be delivered to alter the housing market in some way, Crest Nicholson owned £5.8bn of short term development land and £6bn of "strategic" land in its pipeline.

"Maintaining momentum through planning is a major challenge for the industry and continues to be a key focus for the business as we seek to increase site numbers and grow our contribution to housing delivery," was the company's comment, one of many lobbying comments from the industry of late.

On the outlook, Crest said the housing market was "generally robust", with sales prices continuing to show moderate growth, although Central London transactions are suffering from some volume and price weakness.

"Crest Nicholson has a strong balance sheet, is securing land at good margins and operates a disciplined business model which is generating strong returns whilst also contributing to the much needed supply of housing in the UK.

"Against this market backdrop the Board remains confident that the business is well positioned to continue to deliver a strong operational and financial performance in the medium term."

Shares in the company fell 6% to 489.2p by 0920 GMT on Wednesday morning.

Analyst Robin Hardy at Shore Capital said the update seemed to indicate that full year profit before tax "could come in slightly below consensus".

"Taking the indicated sales volume, selling prices and expected margins Crest seems to suggest that PBT could be closer to £205m than the £213m that we expect and that is the consensus," he said, suggesting the main difference looked to be margin where he was expecting an EBIT return of 20.4% but the statement indicates that it could be nearer 20% or even below.

However, while the backward looking numbers could be a small miss, he hailed the strong forward sales position and said he still liked "the ambition of this business and its desire to expand rapidly and this underscores still the relative attraction of the smaller, midcap businesses relative to sector’s leviathans".