Jefferies cuts Crest Nicholson to 'hold' in upbeat sector note

In a sector note, Jefferies said Crest Nicholson's margins would be squeezed by lower volumes and selling prices leading to earnings reductions. Jefferies downgaded the shares from 'buy' and reduced its price target to 226p from 331p.

Jefferies analyst Glynis Johnson left other recommendations in the sector unchanged and stuck to her top picks rated 'buy': Berkeley, Persimmon, Countryside and Redrow. She said share prices were building in a worse trading environment than was likely but that this would take time to be borne out.

"In a context where we believe investors will continue to shy away from stocks with perceived higher-risk profiles, we believe Crest's share price will continue to be a laggard relative to its peers, until firm evidence of margin improvement and cash conversion," Johnson said.

Johnson said share prices implied a fall of 10% or more for house prices which was overdone given factors underpinning valuations including government support.

"We believe with banks' willingness to lend on Help to Buy, strong buy vs rent economics, the greater priority of homes post lock-down, and decades of under-supply will continue to provide a resilient demand profile," she wrote in a note to clients.

Demand will be strongest from first-time buyers and for cheaper homes, favouring Persimmon, and for affordable homes, perhaps boosted by the next budget, favouring Countryside, she said.

Persimmon and Berkeley's ability to pay dividends is undervalued but Redrow and Bellway provide a better value opportunity in the sector as worries about stretched balance sheets recede, Johnson said.