Crest Nicholson offers 'extreme value' after de-rating, says Liberum

By Michele Maatouk

Date: Thursday 21 Jun 2018

Crest Nicholson offers 'extreme value' after de-rating, says Liberum

(Sharecast News) - Crest Nicholson was on the rise on Thursday as Liberum initiated coverage of the housebuilder at 'buy' and with a 528p price target, saying the stock's long-term attractions are undervalued.
Liberum said the de-rating in the share price after some margin erosion in 2018 has been overdone and the stock now offers "extreme value".

Crest Nicholson's shares were strong performers from the IPO in February 2013 until around May 2017. They rose around 185% in that period, beating the market by 132% and the sector by 17%. Since then, however, they have underperformed against the market and the housebuilders as margin expectations for 2018 have fallen from 20% to 18%.

"We expect profit growth to resume as margins stabilise and geographic expansion drives output growth," it said, noting that the long-term attraction is that the housing shortage is most acute in Crest's regions.

"The shares look very over-sold on 1.0x book, yielding 9% and on only 6x price-to-earnings ratio in spite of earnings per share growing again from 2019."

In addition, the brokerage pointed to Crest's "attractive" business model, with relatively high returns earned at lower than average risk, as some land buying terms de-risk larger sites. It also said Crest adds value by developing out larger sites and by using strategic land.

Liberum also highlighted the company's healthy balance sheet and strengthening cash flows. Crest has average net debt of around £170m in 2018, and the brokerage expects debt to come down, especially once the company's' newer regions have reached maturity.

At 0900 BST, the shares were up 3.6% to 413.40p.


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