Crest Nicholson cuts FY outlook, shares tank

(Sharecast News) - Crest Nicholson downgraded its full-year outlook on Tuesday and said it was seeking temporary banking covenant relaxation with its lenders as it cited economic uncertainty and the ongoing conflict in the Middle East. The housebuilder noted that since its annual general meeting on 25 March, macroeconomic uncertainty has increased, with the ongoing conflict in the Middle East likely leading to a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence.

As a result, it now expects sales of between 1,400 and 1,500 units for the year, down from previous expectations of 1,550 to 1,700.

It also expects a reduced number of land sales, with revenue of about £40m, down from previous guidance of £75m to £100m. Under its revised forecasting assumptions, Crest Nicholson does not expect to make a material level of profit on disposals in the remainder of the financial year.

The company now expects to achieve an EBIT for the financial year of around £5m to £15m, with interest costs of circa £15m and a revised year end net debt position of £100m to £120m. It had previously expected net debt of £15m to £65m.

Jefferies said the new EBIT guidance suggests circa 66% to 89% cuts to the latest company-compiled consensus of £43.7m. It also said that guided costs of around £15m suggest there will be no pre-tax profit generation this year - implied guidance range of between £10m and £0 - versus a consensus pre-tax profit estimate of £33.5m.

Crest Nicholson said that given the difficult backdrop, it has decided to prioritise cash and balance sheet strength. It is targeting a faster reduction of its finished plots inventory, particularly on completed apartment schemes and further tightening of work in progress (WIP) controls across its developments.

It also said that given lower expected profitability, it is in the early stages of seeking temporary banking covenant relaxation and that talks with its lenders have begun.

Chief executive Martyn Clark said: "We remain committed to our strategy of positioning Crest Nicholson as a leading player in the mid-premium housing market and continue to make good progress on our Project Elevate transformation initiatives.

"However, it is increasingly clear that the current macroeconomic uncertainty is contributing to the prospect of a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence. Therefore, in the near term the right and prudent course of action is to adapt quickly to the challenges presented by the current trading environment and focus on prioritising cash generation and optimising our balance sheet position.

"We are doing what needs to be done to navigate this uncertainty to best position the business to deliver the attractive medium-term opportunity."

At 0915 BST, the shares were down 37% at 68.10p.

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