Crest Nicholson PLC (LSE:CRST) shares seesawed in early trading, falling 5% then rising 1.3%, as the housebuilder warned it could be at risk of breaching banking covenants.
It reported larger fire safety remediation charges, which contributed to a sizeable pre-tax loss, but on the positive side net debt was less than expected and sales in early 2025 have been improving.
In a going concern assessment, the board forecasts that the group will meet all its covenants, though if economic and other conditions are worse than expected the group would not meet a key covenant.
"The group maintains good relationships and a regular dialogue with all its lenders and is confident that an amendment to its covenants would be secured if necessary, however, this is not guaranteed and therefore this represents a material uncertainty related to going concern."
A loss before tax of £143.7 million was reported for the year to October, following exceptional charges of £166.1 million, including £131.7 million related to additional fire remediation provision.
An assessment of all buildings within the scope of the Developer Remediation Contract resulted in a total fire remediation provision at the 2024 year end of £249.3 million, compared with £145.2m at the half year.
Adjusted profit before tax came to £22.4 million, still down 53% on the prior year and at the lower end of guidance given in November, as revenues shrank 6% to £618.2 million.
Housing sale completions fell 7.3% to 1,873, as previously guided, due mainly to a fall in the private sales rate due to affordability issues in the south of England, compounded by a reduction in active sites.
Operating profit margins declined to 5.1% from 7.7% due to legacy cost issues and flat selling prices.
Trading in early 2025 has "shown an ongoing incremental improvement in sales performance", the company said, supported by encouraging indicators such as increased website visits and follow-up appointments.
"However, the slower than anticipated pace of interest rate reductions continues to weigh on the ability to convert indications of interest and is tempering the housing market recovery.
"We remain cautious but anticipate greater stabilisation in the trading environment during the second half of 2025, underpinned by pent-up demand for good quality homes," Crest said, expecting the private sales rate to improve to 0.5-0.6 per site, per week in 2025 from 0.48 last year.
The forward order book stood at 1,051 units at the end of January.
Broker Stifel said: "While there are still challenges to be overcome in recovery, we find valuation compelling enough (at 0.6x book) to justify the risk. The market is likely to be pleased that guidance is consistent with consensus, and will hope this marks the end of a cycle of downgrades."
** Update: Detail on going concern added. **