The housebuilding sector is in the doldrums this morning as releases from Crest Nicholson (CRST) and Bellway (BWY) add to fears the sector’s level of profitability may have peaked.

Crest Nicholson slumps 5.9% to 420p on downbeat first half results and Bellway sinks 2.4% to 33.26 on a mixed quarterly update. They are followed lower by peers such as Persimmon (PSN) down 1.5% at £28.18 and Redrow (RDW) down 2.6% at 596.2p.

A common feature of both announcements is negative guidance on margins amid stalling house prices at the top end of the market.

PREMIUM PRICED PROPERTIES UNDER PRESSURE

AJ Bell investment director Russ Mould says: ‘For now, the pain seems to be concentrated at the top end of the market.

‘Bellway admits it is making use of incentives to sell premium-priced properties as it guides for margins to be modestly lower in the year to 31 July 2018.

‘Crest Nicholson, which had already warned on margins in May, has an average selling price of £439,000 which is materially higher than that of its peers.’

MIXED ANALYST VIEWS

Shore Capital analyst Robin Hardy reiterates his ‘buy’ recommendation on Crest Nicholson for now despite noting the first half results themselves were ‘a little worse’ than anticipated even if the downgraded guidance on future returns was unchanged from May’s pre close update.

On Bellway Hardy stays at ‘hold’ and says: ‘The comment on margins and the more cautionary comment on pricing are likely to be seen as weaker than expected and not well aligned with the recent strength in the share price.’

His counterpart at Canaccord Genuity, Aynsley Lammin, is more positive on Bellway, staying at ‘buy’ with a £40.30 price target. He says: ‘The group continues to buy land to grow volumes further and while house price inflation moderates the group looks well placed to continue to deliver good volume growth at attractive margins.’

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Issue Date: 12 Jun 2018