Crest Nicholson Holdings PLC

Crest Nicholson Holdings PLC (LON: CRST) is a FTSE 250 listed residential housebuilder, domiciled in England and Wales.

Rationale for Valuation – SPECULATIVE BUY at GBX 335.00

• Significant Shareholder Value: CRST has established a strong operating platform, made rapid financial progress, and expanded into new geographic operations, while maintaining a robust balance sheet. Therefore, it is well-positioned for deliver the next phase of growth.
• Favourable Dynamics: The gradual withdrawal of tax breaks failed to dampen the strong momentum of the housing market, and hence, house prices shall continue to beat expectations in the near term unless there is a rise in mortgage rates.
• Technical Indicator: From a technical standpoint, 14-day RSI (~31.87) is around the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bollinger Bands.
• Valuation Multiples: On a forward 12-month basis, valuation metrics – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book are quite undervalued against the Homebuilding & Construction Supplies industry.

Key Risks

• House Prices Slowdown: The asking price for the UK homes slipped in November 2021 as the market entered its usual lull ahead of the Christmas holidays.
• Regulatory Changes: As the government started to taper the stamp duty holiday from the June 2021 end, house prices have fallen for the first time in 2021.

Recent News

Capital Market Day Event: On 20 October 2021, CRST held its investor and analyst event, and unveiled its potential to deliver earnings accretive growth, with target of achieving net zero carbon emission by 2050. 

Interim Results (for the six months ended 30 April 2021, as on 24 June 2021)           

 (Source: Company Website)

• Solid Trading: CRST reported strong trading performance in H1 FY21, while its strategy remained on track to accelerate growth.
• Health Balance Sheet: The Group strengthened the balance sheet and turned into a net cash position of £130.4 million at the end of H1 FY21 (H1 FY20: net debt of £93.3 million).
• Dividend: CRST declared an interim dividend of 4.1 pence per share, reflecting confidence in the outlook.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

British house prices jumped in October 2021 at a faster rate than anticipated, buoyed on lack on new homes and robust demand. Adjacently, CRST is well-positioned to deliver the next phase of growth as it continued to make good progress against all its strategic priorities against the backdrop of the ongoing pandemic. In terms of guidance, the adjusted profit before tax in FY21 is expected to be at least £100.0 million as the Company has accelerated the margin recovery. The stock made a 52-week high and low of GBX 469.00 and GBX 276.20, respectively.

The below image shows the Company’s medium-term targets:

(Source: Company Website)

Based on the decent trading performance, upgraded guidance, favorable market dynamics, and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” stance on Crest Nicholson Holdings PLC at the current market price of GBX 335.00 (as on 17 November 2021, at 8:02 AM GMT), with lower double-digit upside potential based 12.25x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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