Crest Nicholson - Holding up under tough conditions

Tuesday, 29th January 2019 09:09 - by Rajan Dhall

Crest Nicholson today released their latest final results for the year ending October 31st. The company have performed well considering the state of the UK housing market recently. The company particularly struggled in London as operational costs were slightly underestimated. Having said that the operating margin still stands at 16.7% vs 20.3% in 2017. One key thing I picked out from the report was the fact that build cost inflation is continuing to grow, the company say the weakening pound and pressure on wage costs are hurting the bottom line and this may not change after we leave the EU. Here are some of the other highlights:

•      Sales, including those from joint ventures, of £1,136.6m (2017: £1,065.6m) - up 7%

•      Statutory revenue of £1,136.1m (2017: £1,043.2m) up 9%

•      Volumes up 3% at 3,020 homes (2017: 2,935)

•      Pre-tax profit down 15% to £176.4m (2017: £207.0m)

•      Operating profit margin of 16.7% (2017: 20.3%)

•      Forward sales at mid-January of £639.4m (2017: £575.7m), 11% ahead of prior year

•      Total dividend maintained at 33.0p, covered 1.7x by earnings (2017: 33.0p and 2.0x cover)

Looking at the daily chart below it is clear to see we are in a downtrend making lower lows and lower highs. It is hard to see how this pattern can change considering the issues the industry faces. Margins look set to be squeezed as costs rise and skilled staff will be harder to come by after the UK leaves the EU. I have plotted some key resistance levels on the chart that I will keep an eye on and although the share price is higher today, it may come under pressure at some of those levels. There was a heavy gap lower and then a subsequent recovery but if all the housing companies keep increasing volume to make up for the squeeze in margins we could head for a period of oversupply. Probably much needed in the UK.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.