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Crest Nicholson shares crumble as profits dip and margins contract in first half

Last updated: 04:32 12 Jun 2018 EDT, First published: 02:27 12 Jun 2018 EDT

Houses
Crest’s operating profit margins shrank to 17.2% from 19.1% in the first half of the year

Crest Nicholson Holdings PLC (LON:CRST) has seen its shares slide in early trading Tuesday as it reported a dip in pre-tax profits in its half-year results in addition to a contraction in its margins that was expected to remain into the next financial year.

The FTSE 250 housebuilder reported a pre-tax profit for the period of £74.8mln, down from £76.2mln the year before, while revenues rose to £473.8mln from £419.7mln.

READ: Crest Nicholson's dividend under threat as it warns on margins

Crest’s operating profit margins also shrank during the period, to 17.2% from 19.1% in the same period last year, caused primarily by build cost inflation and flat pricing.

The margin result is worse than what was expected in May, when the company issued a trading update saying its operating margins for the six months to the end of April would be around the bottom end of its 18-20% guidance range.

In its outlook, the company said house sales would continue to be impacted by a slow second-hand market an that this would likely restrain volume growth in the near term and impact overall pricing gains.

They added that operating margins for the next year were expected to remain stagnant at around 18%.

Patrick Bergin, Crest Nicholson chief executive, said: "The Group has delivered a good sales performance in the first half of the year. The business continues to increase the number of homes built and carries positive momentum into the second half of 2018, with steady outlet growth and higher forward sales.

He added: “Our experience of generally flat pricing against a back-drop of continuing build cost inflation has, however, had an adverse impact on our margins and we have taken a number of actions to seek to offset build cost pressures and invest in areas of greater housing affordability.”

Artjom Hatsaturjants, research analyst at Accendo Markets, commented: “Crest Nicholson was attempting to alleviate some of the pressure on operating margins by investing in areas with more affordable housing, yet this would only address one side of the equation, with the issue of costs left unaddressed by the company apart from vague promises to tackle the problem going forward. And with the average sale price +5%, would some of the more expensive developments end up much harder to sell?

He added: “Markets were unimpressed with lack of a clear cost control strategy and with UK housing sector on the downturn (with latest Halifax House Price May data pointing to a still very soft market) it is not clear if the outlook for the housebuilder will improve substantially. Crest Nicholson pointed out that cost inflation was “showing some signs of moderation” which read like a potential admission that the company was at the mercy of the macroeconomic environment and wasn’t taking proactive enough steps to put a leash on rising build costs.”

Crest Nicholson shares were down 7.3% at 413.6p.

--Adds analyst comment and share price--

 

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