Crest Nicholson PLC (LSE:CRST) shares fell 12.7% to 53.5p after the housebuilder warned that weaker sales and competitive pricing would push it to an operating loss, prompting Peel Hunt to flag revisions to its forecasts.
The broker, which rates Crest Nicholson a ‘buy’ with a 90p price target, said the company now expects an EBIT loss of around £10 million for the current financial year, compared with previous guidance for a profit of between £5 million and £10 million.
The downgrade reflects a deterioration in open-market sales, with the net sales rate falling to 0.35 during the past six weeks from 0.48 during the first half and 0.55 a year earlier.
Crest also reduced its completion guidance to between 1,350 and 1,400 homes from a previous range of 1,400 to 1,500.
Peel Hunt said the weaker volumes had been compounded by continued competitive pricing, particularly on bulk sales to institutional buyers. These transactions have also resulted in further write-downs against a small number of development sites.
The warning appeared to weigh on the wider UK housebuilding sector. Vistry Group fell more than 4%, Bellway lost around 2%, while Taylor Wimpey, Persimmon, Berkeley Group and Barratt Redrow declined by approximately 1.5% to 2%.
The sector moves came after mortgage brokers warned that lenders could increase fixed rates following a sharp rise in the swap rates used to price home loans.
The broader reaction suggests investors viewed Crest’s comments on affordability, sales rates and pricing as having implications for the wider new-build housing market. However, its balance-sheet and covenant concerns remain company-specific.
The update contained more encouraging news on debt. Crest now expects year-end net debt of between £70 million and £90 million, an improvement from its previous £100 million to £120 million forecast.
Peel Hunt said the reduction reflected further land sales and the recovery of fire-remediation costs from a third party.
Discussions with lenders over easing certain covenants, principally the interest-cover requirement, are continuing, although Crest acknowledged that the timetable had slipped.
Peel Hunt said it would revise its forecasts to incorporate both the weaker trading performance and improved cash-flow outlook.
The broker noted that Crest shares had already fallen 57% since the beginning of the year, making the company the weakest performer in the housebuilding sector. On current estimates, the shares trade at only 0.2 times price to tangible net asset value.