A profit warning at retirement housebuilder McCarthy & Stone (MSC) has triggered a 14.5% decline in its share price to 111.5p as a strong selling period over spring failed to materialise.
The news coincides with the resignation of chief executive Clive Fenton who will retire at the end of August. He claims a new strategy is needed since Brexit and a lack of Government support, including a proposed ban of ground rents, brings additional challenges.
McCarthy & Stone says profit in the year to 31 August will be between £65m and £80m, down from £96m in 2017.
A ‘noticeable decline’ in reservation rates has been blamed as customers are more cautious amid economic uncertainty, a slower secondary market and softer prices, particularly in the South East.
In 2018, house prices in London have declined compared to more affordable areas of the UK as inflation puts pressure on workers with lower wage growth.
McCarthy & Stone expects to achieve between 2,100 and 2,300 legal completions, down from 2,302 in 2017.
Its order book is lower than management expectations at £706m, but this is expected to be enough to meet current full year expectations.
STRATEGIC REVIEW UNDERWAY
In April, McCarthy & Stone started a strategic review, which will aim to focus on improving margins and return on capital employed.
It hopes this will lead to a ‘more measured growth trajectory’ and cost savings with more details expected in September.
Several strategic initiatives and a broader choice for house ownership, including rental and part ownership, will be tested to bring in more customers.
Canaccord Genuity analyst Aynsley Lammin says visibility remains very poor over what level of margins and returns the group can deliver over the medium term.
‘The balance sheet is not stretched in terms of leverage, but visibility around what returns can be delivered over the medium term is lacking and this makes valuing the equity extremely difficult,’ comments Lammin.
