McCarthy & Stone FY revenue up but warns of housing market weakness

Shares in McCarthy & Stone slumped after the retirement housebuilder reported a rise in revenue in the year to the end of August but said there has been evidence of some weakness in the secondary housing market since its update at the end of June.

In a trading update ahead of its full-year results in November, the company said revenue was up 31% to around £635m, with legal completions 20% higher at 2,299 units.

Meanwhile, the land bank increased to approximately 10,206 plots from 10,087 and the net average selling price jumped 8% to £259,000.

Still, McCarthy said it had seen evidence of some weakness in the secondary housing market since its trading update on 29 June.

The company said that while website enquiries have increased and it has continued to take new reservations, these have been at a lower level than in the first nine months of the financial year and cancellations have been at higher levels.

“Whilst it is too early to judge what medium term impact we will see from the EU referendum result and the Bank of England's subsequent changes to monetary policy, prolonged housing market weakness, particularly in the secondary market, could affect our ability to deliver our targeted 15% volume growth previously indicated for the financial year ending 31 August 2017.

“There has been some improvement in customer sentiment during the month of August, however, it is too early to predict at this stage whether these improving conditions will persist into the new financial year.”

Peel Hunt said: “Given the lower level of profits the group is likely to make for FY16 we are cutting our margin and volume growth assumptions for FY17-18 such that our profit before tax drops by 21% to £130m for FY17 and 18% for FY18 to £170m.

“These figures assume that the autumn housing market returns to a near normal (ie pre Brexit) level. On the back of the lower forecasts we are pulling our price target back to 235p from 270p. We continue to believe that the demographic positioning of the group offers great medium term growth which should be reflected in a higher share price and so we retain our ‘buy’ recommendation.”

At 1210 BST, shares were down 11% to 187.30p.