In light of mounting concerns about the health of the housing market - particularly in the South East of England – interim results from Crest Nicholson (CRST) provide an ideal opportunity for investors to view another snapshot of the sector arguably driving the lion's share of the UK's economic recovery.
Today, Chertsey-headquartered Crest Nicholson's shares rise 4% to 337.8p as the housebuilder's half-year results to April reveal 31% year-on-year growth in housing revenue, gross profit margins up 90 basis points to 28.7% and operating margins edging up from 15.1% to 18.5%.
Chief executive Stephen Stone tells investors that an improving economic backdrop underpins the strength of the sector and the opportunities available to the £817 million cap mean the board is confident in the outturn for the year. Westhouse Securities' Alastair Stewart views Crest's results in the context of 'a wider house building perspective, amid concerns of a slowing London market, because the company is mainly South East-based'.
Certainly, there are reasons for investors to be cheerful: in the first six months, housing revenues grew by almost a third, reflecting a combination of volume growth, higher open market Average Selling Prices (ASP) as well as legal completions up 35% at 1,091. Crest Nicholson, which eschewed an interim payout last year, proposes a 4.1p half-time dividend covered a reassuring three times by earnings up 32% to 12.3p per share.
Going forwards, Crest Nicholson predicts revenue could grow by between 70 and 80% in three years, buoyed by growth from its new division in the North West counties as well as generally higher selling prices. But looking beyond the headline figures, sales per site were only up 8% and as at mid-June, forward orders have only notched up a 5% year-on-year gain.
In light of the prospect of rising interest rates and more stringent stress-testing of mortgage customers as a result of the Mortgage Market Review (MMR), Crest Nicholson warns that 'any policy changes aimed at cooling the London market need to be mindful of the potentially detrimental effect on regional growth'.