Crest Nicholson is one of Britain’s biggest housebuilders. It has now issued its third profit warning due to rising costs. This has sparked speculation that the company could be a target for takeover if its fortunes do not improve.
In less than a fortnight, the Surrey-based firm will release its full-year financial results. The results are expected to reveal the difficult year faced by housebuilders like Crest Nicholson due to rising interest rates that have discouraged buyers and led to a fall in house prices.
Crest Nicholson’s latest profit warning is the result of “a comprehensive review” of increasing costs, including bills related to a Surrey development site which contributed to its second downgrade of profit in November.
It informed investors on Monday that costs associated with the Brightwells Yard Regeneration Scheme in Farnham and other projects would cut up to 18% from its adjusted profit, which is estimated at £41m in 2023.
The company announced that it would allocate £13m to cover potential legal costs related to an apartment fire in one of its low rise schemes by 2021. Crest Nicholson shares were down 4.7% in the morning on Monday, making it one of the largest fallers among the FTSE 250.
Crest Nicholson downgraded their profits for the first time in August. They said they were likely to make £50m profit in the financial year compared to about £74m that was expected in June. The downgrade was a result of fewer sales, especially from first-time homebuyers. In addition to the higher interest rates that make mortgages costlier, sales also fell due to the ending of the government’s Help-to-Buy scheme which allowed people buy a house with just a 5% down payment.
Crest Nicholson warned investors again in November after Brightwells Yard costs rose by £11m. The company then revealed that profits for the full year would likely range between £45m and £50m.
Analysts speculated that Crest Nicholson might become a target for a takeover after the third and latest profits warning.
Anthony Codling, head of European Housing and Building Materials Research at RBC Capital Markets said: “It’s been a difficult year for Crest, and unfortunately, for the group and its shareholders, the bad news is continuing.” If today’s trading updates lead to further share price declines, it may increase the likelihood that Crest will be considered as an attractive acquisition by another housebuilder.
Crest Nichsolson stated that a recent drop in mortgage rates has “provided more positive backdrop for home buyers and the housing market as a whole”.
The company said that, “although it is still too early to assess customer behaviour, the increase in interest and inquiries from customers this calendar year has been encouraging.”
Knight Frank, a global property consultancy, said that a mortgage price war and the expectation of Bank of England rate cuts may rekindle interest in the property market. The estate agent announced on Monday that it has updated its forecast of UK house prices rising by 3% in the year 2024. This is up from a previous estimate of a decline.