One of Britain’s largest housebuilders, Crest Nicholson, has issued its third profit warning in a matter of months because of rising costs, raising speculation that it could become a takeover target unless its fortunes reverse.
The latest warning comes less than a week before the Surrey-based company will issue its full-year results, which are expected to lay bare the challenging year that housebuilders such as Crest Nicholson have faced amid surging interest rates, which have deterred buyers and caused house prices to fall.
Crest Nicholson said its latest profit warning was the result of a “comprehensive review” of rising costs, including bills linked to a Surrey-based development site that contributed to its second profit downgrade in November.
It told investors on Monday that the climbing costs linked to the Brightwells Yard regeneration scheme in Farnham, as well as other ongoing projects, would shave up to 18% of its adjusted profits, which are estimated to come in at £41m for 2023.
The company said it will earmark £13m for potential legal costs linked to a fire at one of its low-rise apartment schemes in 2021. Shares were down 4.7% on Monday morning, making Crest Nicholson one of the biggest fallers on the FTSE 250.
The warning comes months after Crest Nicholson’s first profit downgrade in August, when it said it was likely to make £50m in profit for the financial year, compared with about £74m that it had expected back in June. It followed a drop in sales, particularly from first-time buyers. On top of the deterring effect of higher interest rates, which make mortgages more expensive, sales fell because of the end of the government’s help to buy housing subsidy, which allowed people to buy a home with a 5% deposit.
In November, Crest Nicholson again warned investors after costs linked to Brightwells Yard development rose by £11m, forcing it to reveal that full-year profits would more likely be in the range of £45m to £50m.
The company’s third and most recent profits warning has led analysts to speculate over whether Crest Nicholson could become a takeover target.
“It has been a tough year for Crest and, unfortunately for the group and its investors, the bad news continues,” the head of European housing and building materials for the investment bank RBC Capital Markets, Anthony Codling, said. “In our view if today’s trading update leads to further share price weakness it increases the chances that Crest may be viewed as an attractive acquisition for another housebuilder.”
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However, Crest Nichsolson said a recent reduction in mortgage rates, which has helped lure more buyers on to the market, had “provided a more constructive backdrop for house buyers and the wider housing market”.
“Although it is too early to gauge customer behaviour, we have been encouraged by an increase in customer interest levels and inquiries this calendar year,” the company said.
It comes as the global property consultancy Knight Frank said a mortgage pricing war and expectations of Bank of England interest rate cuts could rekindle the property market. The estate agent said on Monday that it had updated its forecast for UK house prices to rise by 3% in 2024, up from an earlier estimate of a 4% drop.
