Brexit shock as Crest Nicholson warns on London's housing market
Housebuilder Crest Nicholson sent shudders through the sector on Wednesday as it blamed Brexit for a Home Counties sales crunch which could wipe more than £30 million off annual profits.
Crest’s key markets in London and the affluent commuter belt have been on the front line of the uncertainty over the UK’s exit from the EU, with buyers sitting on their hands amid mounting fears of “no-deal” disruption.
The builder’s shares tumbled 7%, or 22.8p, to 300.2p as Crest warned an autumn pick-up in sales had fallen flat and a “turgid” second-hand market is also hampering the sale of its new-build homes.
Executive chairman Stephen Stone is hunkering the business down to weather the potential storm, slowing build rates and cutting spending on land to focus on cash reserves and dividends.
Finance director Robert Allen has been jettisoned after just 18 months, with chief executive Patrick Bergin also taking on the finance role. Bergin will now defer to Stone, who is leading the new strategy.
Crest now expects pre-tax profits of between £170 million and £190 million this year, far short of the £204 million pencilled in by the City, its third profit warning in six months.
While the London market has been struggling since the Brexit vote, Crest is also exposed to sales of more “aspirational” homes in the Home Counties worth £800,000 or more, which are ineligible for the Government’s Help to Buy Scheme.
Stone said: “Our portfolio is in geographically what we believe long term is the most prosperous part of the country, but at the moment there is a degree of uncertainty. It is not as though we are not selling, we are just selling at a slower rate. London faces its own affordability issues, but we’ve seen a slowdown during the summer and the September and October bounceback we just haven’t seen. You can only put that down to Brexit chatter. Persuading a discretionary buyer to transact amid a backdrop of manifest uncertainty is difficult.”
Crest’s warning comes after Bellway said its biggest fear over the market was faltering consumer confidence around Brexit, while London-focused Telford Homes’ shares were also hit last week as it said customers were taking a “wait-and-see” approach as March 29 looms.
Shares in listed builders fell with firms with more exposure to dearer homes such as Persimmon and Berkeley worst hit.
Persimmon was down 2% and Berkeley off 3%. Barratt Developments fell more than 1% despite saying today it had started the year in a “strong position, with a good sales rate”.
Peel Hunt’s Gavin Jago has a target price of 330p on the stock and said “bid speculation may increase if the shares fall significantly below this level”.
Shore Capital analyst Robin Hardy added: “The problem is really one of affordability, although the industry is keen to blame Brexit.
“Bellway yesterday acknowledged that Brexit actually barely registers outside London, so we still believe that that is not the core of the issue for the housebuilders but a raw lack of affordability.”