Shares of Crest Nicholson Holdings plc (LON: CRST) have plummeted approximately 37.7% following a trading update that painted a concerning picture of the housebuilder’s near-term prospects.
Increased macroeconomic uncertainty, driven by geopolitical tensions and the potential for prolonged high interest rates, is weighing heavily on the company’s performance and outlook.
The company’s trading update revealed a softening in the housing market, particularly in its Southern division, although the Midlands, South-West, and Eastern regions remain positive.
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While open market reservations have held steady since mid-January, new enquiries and visitor levels have declined, signaling a potential slowdown in future sales. Critically, the company stated that it is not currently experiencing materially higher levels of discounting and has not seen an increase in the use of incentives or cancellations.
Land sales, a crucial component of Crest Nicholson’s revenue stream, have also taken a hit. Prospective buyers are exhibiting increased caution, leading to reduced engagement in bidding processes and a reluctance to transact at market values. This shift in sentiment has prompted the company to significantly reduce its land sale revenue expectations.
As a result of these headwinds, Crest Nicholson has revised its guidance for the financial year, which concludes at the end of October. The company now anticipates delivering 1,400 to 1,500 units, down from the previous forecast of 1,550 to 1,700 units. The current order book stands at 1,106 units.
Prioritizing cash and balance sheet strength, Crest Nicholson is focusing on accelerating the reduction of its finished plots inventory, especially in completed apartment schemes, and tightening work-in-progress controls across its developments.
Revenue from land sales is now expected to be around £40 million, a considerable decrease from the initial projection of £75 million to £100 million. The company does not expect to make a material level of profit on disposals in the remainder of the financial year. Fire remediation costs remain in line with expectations, with cash expenditure slightly lower than planned at £75 million to £80 million.
Given higher energy costs, the Group has built in an expectation of higher build costs in the balance of the financial year. The company now anticipates an EBIT for the financial year of around £5 million to £15 million, with interest costs of approximately £15 million and a revised year-end net debt position of £100 million to £120 million.
The company is in the early stages of seeking temporary banking covenant relaxation due to the lower expected profitability. Discussions with lenders have commenced, and a further update will be provided in due course.
Martyn Clark, CEO, stated, “We remain committed to our strategy of positioning Crest Nicholson as a leading player in the mid-premium housing market and continue to make good progress on our Project Elevate transformation initiatives. However, it is increasingly clear that the current macroeconomic uncertainty is contributing to the prospect of a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence.
“Therefore, in the near term the right and prudent course of action is to adapt quickly to the challenges presented by the current trading environment and focus on prioritising cash generation and optimising our balance sheet position. We are doing what needs to be done to navigate this uncertainty to best position the business to deliver the attractive medium-term opportunity.”
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