Crest Nicholson Holdings PLC

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

The company expects to announce its half-year results for the six months ending 30 April 2022 on 14 June 2022.

Investment Rationale for Valuation – Speculative Buy at GBX 266.00

• Strong House Price Dynamics: Surging inflation is pumping the UK housing prices. Moreover, the market is still in great shape as supply is tight and borrowing costs remained relatively low despite the recent rate increase by the Bank of England.
• Trading Update: As updated on 22 March 2022, the Group has reported decent trading performance for the period from 1 November 2021 to 21 March 2022. The order book was over 84% covered for FY22 revenue, as of 18 March 2022, up from 63% as reported in its preliminary results in January 2022.
• Growth Catalysts: CRST’s expansion plan is progressing well, and it has appointed a new business leader in its new Yorkshire division and establishing news teams to pursue several land opportunities. Therefore, the Board remained confident about its medium-term prospects.
• Excellent Financial Growth: CRST topped revenues of £786.6 million in FY21, compared to £677.9 million in FY20 driven by the underlying strength in the housing market. Subsequently, it turned in profitability and delivered profit after tax of £70.9 million in FY21, compared to a loss of £10.7 million in FY20.   

Key Risks

• House Price Slowdown: British house prices topped GBP 250,000 in April 2022; however, the pace of price growth is slowed down. Moreover, the soaring inflation rates and the rising cost of debt can gradually impact the inflated house prices.
• Macroeconomic Uncertainties: The resurgence in Covid-19 cases and fresh restrictions in China, the US dollar hitting two-decade peaks, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.

Financial Highlights (for the year ended 31 October 2021, as of 19 January 2022)

(Source: Company Website)

• Rise in Gross Margin: Gross profit margin grew by a robust 910 bps to 18.5% in FY21, compared to 9.4% in FY20.
• Dividend: The management proposed a final dividend of 9.5 pence per share in FY21, taking the total dividend for the year to 13.6 pence per share, reflecting confidence in the outlook.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Vistry Group PLC, Persimmon PLC, Barratt Developments PLC, Taylor Wimpey PLC, and MJ Gleeson PLC.

*All selected peers are LSE-listed Companies from the Home Construction sector.  

Conclusion

The Company is positive on housing demand going forward and has maintained a strong balance sheet to leverage on the market opportunities.

Based on the decent performance, turnaround in profitability, positive outlook and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Crest Nicholson Holdings PLC at the current market price of GBX 266.00 (as of 7 June 2022, 08:15 AM GMT+1) with lower double-digit upside potential based on 7.29x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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