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Crest Nicholson warns on profits, announces CFO departure

By Michele Maatouk

Date: Wednesday 17 Oct 2018

Crest Nicholson warns on profits, announces CFO departure

(Sharecast News) - FTSE 250 housebuilder Crest Nicholson warned on Wednesday that full-year profits will be lower than expected and margins will be below previous guidance, as it announced the departure of its chief financial officer.
In a pre-close trading update, the company said the market environment for new homes in London and at higher price points in the South of England has been more difficult than previously anticipated, where sales have not picked up during the traditionally stronger early autumn selling season.

Executive chairman Stephen Stone said: "The usual autumn pick up in sales volumes has not been evident during September and October, with many customers putting off decisions to buy whilst current political and economic uncertainties persist."

Crest now expects pre-tax profit for the year to the end of October to come in between £170m and £190m, which is below the £207m reported last year and consensus expectations of £204m.

In addition, the company said margins are now expected to be lower than the 18% previously guided as they have come under pressure from management actions to mitigate slower private sales rates.

To mitigate the loss of sales volumes, the company decided to accelerate bulk sales to registered providers and private rental sector investors, selected land sales on long tail sites, and slowing build programmes to reflect current sales rates.

"These measures, taken together with pricing pressures in London, are having an impact on the EBIT margin achieved in the year, which we now expect to be lower than the previous guidance of 18%."

The group announced a new strategy to focus on shareholder returns by prioritising cash flow and dividends. Maximising the value in its portfolio and improving operational efficiency. Implementation of the new strategy will be led by Stone, with the help of chief executive Patrick Begin.

Crest Nicholson also said that chief financial officer Robert Allen is stepping down from the board and will leave the company after a short handover period. Patrick Bergin will take on the CFO responsibilities until a replacement for Allen is found.

The company said it continues to target maintaining profitability for 2019 at FY18 levels despite market uncertainty and is committed to paying an ordinary dividend of 33p a share for FY18 and FY19, as long as there is no material deterioration in current market conditions.

At 0930 BST, the shares were down 6.4% to 302.28p.

Shore Capital analyst Robin Hardy said the problem is really one of affordability, although the industry is keen to blame Brexit.

"Bellway yesterday acknowledged that Brexit actually barely registers outside London so we still believe that that is not the core of the issue for the house builders but a raw lack of affordability," he said.

Meanwhile, Liberum cut its stance on Crest Nicholson to 'hold' from 'buy' and slashed the price target to 331p from 528p after the profit warning.

"This remains a strong housebuilder in our view, with problems coming mostly from its challenging geographical mix. We cut our rating to hold, seeing strong support from the revised NAV of 331p -(which forms our target price) - we expect a re-rating to start once investors can see reduced uncertainty in Crest's challenging areas and as implementation of the strategy gets under way."

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