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Crest Nicholson offers "hidden value", says Liberum

The broker resumed coverage with a target price of 379p, making the shares a ‘buy’ on its rating system

Crest Nicholson - house building
The hidden value is in the company's landbank

After Crest Nicholson Holdings PLC’s (LON:CRST) profit warning last week, broker Liberum sees a buying opportunity for investors.

The housebuilder last Thursday warned that profit before tax would be significantly lower than expected for the 2019 and 2020 financial years but that new chief executive Peter Truscott saw opportunities to improve growth and financial performance thereafter.

READ: Crest Nicholson issues profit warning, only expects pick up in 2021

For the current year, guidance for PBT was slashed to £120mln-£130mln from expectations of around £155mln, with profit hit by a £10m writedown to inventory but before a £17mln one-off cost from combustible cladding in the wake of tighter regulations post the Grenfell Tower fire.

Liberum put its recommendation, target price and estimates under review as a result but on Wednesday told clients it was resuming coverage with a target price of 379p, making the shares a ‘buy’ on its rating system.

“We believe that new management should be able to significantly improve earnings from the low base now set for the 2020 financial year,” analysts said, with the 33p dividend and “hidden value” in the landbank providing support for the shares.

Liberum noted that at his previous job Truscott was able to improve profit margins from 16% to 20% and if the housing market regains its feet, “we expect an improvement of similar magnitude at Crest”.

The shares were down 2% to 368.4p on Wednesday afternoon.

Quick facts: Crest Nicholson

Price: 401.2 GBX

LSE:CRST
Market: LSE
Market Cap: £1.03 billion
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