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Crest Nicholson weak as Redburn downgrades in otherwise positive UK housebuilding review

Redburn’s analysts said: “Popular commentary continues to paint the UK housing market as weak, but we view activity as remarkably resilient considering Brexit uncertainties"

Houses
The analysts pointed out that FTSE 100-listed Persimmon emerges best from its risk analysis

Crest Nicholson PLC (LON:CRST) saw its shares fall on Tuesday as Redburn Partners downgraded its rating to ‘neutral’ from ‘buy’ following a recent sector rally, saying the stock “looks uncomfortable”.

In late morning trading, shares in Crest Nicholson were 1.5% lower at 350p. Redburn has a 455p price target on Crest.

READ: Crest Nicholson CFO steps down as tough London housing market hits profits

Redburn’s analysts noted that Crest had a "torrid" 2018 operationally and said there is no notable respite in sight, at least relative to the sector.

They added: "Our buy Crest has been value-based and, barring a major downturn, it is hard to argue the shares are expensive. Indeed, we see fundamental upside of 28%. But we are held back by the risks and at the very least find it hard to see why investors should opt for Crest over mid-cap peers Bellway and Redrow, both of which offer more upside with less risk."

The influential City broker flagged the downgrade in an otherwise positive review of the UK housebuilding sector. In the note to clients, Redburn’s analysts said: “Popular commentary continues to paint the UK housing market as weak, but we view activity as remarkably resilient considering Brexit uncertainties.”

They added: “This reflects solid underlying fundamentals (employment, pent-up demand, policy, credit and supply), which look set to persist.”

The analysts pointed out that developments on the regulatory and reinvestment front are positive, but with heightened political and economic risks, the range of possible cyclical outcomes is wide.

Bad news still discounted

They added that, despite a material year-to-date rally on the perception of easing Brexit risks, UK housebuilder equities continue to discount bad news.

The analysts argued that a near-term decline of around 30% in underlying earnings (EBIT) is still factored in, broadly equivalent to house price and volume falls of 5% and 10% respectively.

They said: “While we see value across the board, our new risk analysis suggests grounds for company selectivity.”

The analysts pointed out that FTSE 100-listed Persimmon PLC (LON:PSN) emerges best from its risk analysis, thanks to its price point, margins and net cash, and remains the broker’s top sector pick.

Elsewhere, Redburn repeated ‘buy’ rating on Barratt Developments PLC (LON:BDEV), Bellway PLC (LON:BWY), Redrow plc (LON:RDW), and Taylor Wimpey PLC (LON:TW.), while remaining ‘neutral’ on Bovis Homes PLC (LON:BVS) and Berkeley Group PLC (LON:BKG).

Quick facts: Crest Nicholson

Price: 367.6 GBX

LSE:CRST
Market: LSE
Market Cap: £944.44 m
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