It offers terrific value, sure, but for many investors, builder Crest Nicholson (LSE: CRST) might still be a risk too far. The broader housing market is undoubtedly robust, as a slew of recent financial updates have shown. But this particular firm hasnât fared as well as most of its competitors. Indeed, it was issuing a profit warning as recently as October as Brexit-related uncertainty smacked appetite for its new-builds.
Despite this trading turbulence though, Crest Nicholsonâs shares are in high demand. The FTSE 250 firm rose more than 30% in value in 2019. And the homebuilder keeps on rising, leaping to 20-month peaks around 460p just today.
Whatâs going on?
For the most part, Britainâs builders have been able to keep annual profits on an upward slant of late. Gone are the days of breakneck bottom-line growth as the roaring property price gains of recent decades have perished in the face of Brexit uncertainty. But thanks to low interest rates, generous mortgage products and the support offered by Help to Buy, demand for new-build properties has on the whole remained quite upbeat since the summer 2016 EU referendum.
Things havenât been quite as rosy over at Crest Nicholson. Almost all of its sites are located in the South of England, and a large proportion of these are in London and the South East. And house prices in the latter regions have been hit particularly badly by the uncertain economic and political outlook.
This is why the bottom line fell again in the fiscal period ending October 2019. Adjusted pre-tax profits tanked 28% year-on-year, to ÂŁ121.1m, as revenues fell 3% to ÂŁ1.09bn. Home completions fell to 2,912 from 3,048 units previously and average selling prices were reduced 2% to ÂŁ388,000.
And Crest Nicholson isnât out of the woods yet. In full-year results released today, it said that it expected comparable profits to fall again in fiscal 2020. Theyâll range between ÂŁ110m and ÂŁ120m, apparently.
Green shoots of recovery?
Despite todayâs announcement, Crest Nicholsonâs share price is up around 5% on the day. Investors are hopeful that sales at the business are gradually beginning to turn around, the builder commenting that it has witnessed some âencouraging signsâ at the start of the new fiscal year. It said that footfall and visitor numbers at its sites are up so far in financial 2020, as is traffic on the companyâs website.
Investors are pretty excited by the builderâs new growth strategy too. Crest Nicholson plans to hike completion numbers to 3,500 units by 2022, it was announced today. Itâll hike the number of sales outlets to 70 from 59 right now. And itâs aiming to improve operating profit margins by at least 250 basis points from 12.2% at present too.
Now, the Brexit issue isnât quite over and done with yet. And for this reason, Crest Nicholson might have to keep paddling hard just to stand still. But over the longer term, the firmâs building the foundations for strong and sustained profits growth. At current prices, it trades on a low forward P/E ratio of 13.2 times and carries a monster 7.1% yield too. I can see why itâs attracting a lot of fresh stock investors today. It could well help many retire in comfort in the years ahead.