Crest Nicholson Holdings (LSE: CRST) hasn’t recovered as strongly yet as its FTSE 100 counterparts, but the FTSE 250 house builder could be set for new growth.
FY results, released 23 January, show a 28% drop in revenue in 2023. And adjusted profit before tax was hammered — down to just £41.4m, from £137.8m the previous year.
No wonder, then, that the share price is down 40% in the past five years.
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The firm also took a £13m charge related to a legal claim over fire damage at one of its developments.
But I do think the tide could be turning.
Crest ended the year with net cash of £64.9m. That’s some way down on the FY 2022 figure of £276.5m, but at least it’s positive.
Green shoots
The company also raised its investment in land over the year, adding 3,864 new plots.
I remember in the last sector slump, all the house builders were buying up land when it was cheap. And that led to a long bull run. Same again? I hope so.
By 19 January, Crest’s forward sales had reached 1,732 units. At the same point a year ago, the figure stood at 2,018, but that was before the mortgage rate crisis had really set in.
At this point, I think that looks good.
Dividend
The bad news for dividend investors is that the annual Crest cash payment should fall in 2024. The firm kept the 2023 total dividend in line with last year, at 17p per share. On the current share price, that’s a yield of 8.2%.
But the board said it “expects to return to its policy of 2.5 times cover going forward“.
Broker forecasts suggest only around 2.6% for 2024, but they already have it rising to 3.6% in 2025. And if this is the start of the hoped-for recovery, it might just mark the start of a solid long-term income stream.
The price-to-earnings (P/E) ratio should drop to 12 by 2025 too, if the analysts are right. That’s lower than Taylor Wimpey and Persimmon, as two examples, though those are still on bigger forecast dividends.
Outlook
Crest Nicholson stock hasn’t attracted the investors the way some other builders have. But some low-margin developments in recent years have held it back — and that’s not good when markets are already tough.
But I think CEO Peter Truscott sums up the outlook for the property market in general, when he says: “The medium-term prospects for housing demand remain positive with the structural under supply of housing, however the challenging planning environment is likely to slow volume growth in the sector.“
Long-term gains?
So, maybe another tough year ahead. But we’re still in a chronic housing shortage.
Crest Nicholson might be one of the risker house builders right now, largely due to its relatively small size and because of some specific profitability issues.
But after getting through 2023 intact, I reckon it could be an overlooked long-term buy now.
