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UBS cuts Crest Nicholson, to 'neutral', says decline more severe than estimated

While the latest profit warning may not have come as a complete surprise given the change in management, the quantum of the downgrade was nevertheless surprising"

Houses
“We think the story will now transition to margin recovery, but this looks like it is deferred to FY21," the UBS analysts added

Crest Nicholson Holdings PLC’s (LON:CRST) decline is more severe than estimated, UBS said in a note Friday downgrading its rating for the stock to ‘buy’ from ‘neutral’ and lowering its price target to 390p from 450p.

On Thursday, the FTSE 250-listed housebuilder issued a warning that its profit before tax is expected to drop by 17% and 25% in 2019 and 2020, respectively, with “strong” growth thereafter.

READ: Crest Nicholson Holdings issues profit warning, only expects pick up in 2021

In a note to clients, UBS's analysts said: “While the latest profit warning may not have come as a complete surprise given the change in management, the quantum of the downgrade was nevertheless surprising."

“We think the story will now transition to margin recovery, but this looks like it is deferred to FY21," they added.

According to the UBS analysts, Crest's operating margins will rise to 13% this financial year, with a potential to align with the sector average of 19%.

Recovery is forecast for 2021, which will coincide with a moderation in industry margin following the regional house price caps and the phase-out of the “Help to Buy” scheme, scheduled to expire in 2023, which the UBS analysts noted is one of the elements supporting the housebuilding sector.

After dropping on Thursday, Crest shares were down another 3.2% to 375.80p on Friday morning.

Quick facts: Crest Nicholson

Price: 440.2 GBX

LSE:CRST
Market: LSE
Market Cap: £1.13 billion
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