Crest Nicholson PLC's (LON;CRST) decision yesterday to turn down its assumptions for house prices should not mean other builders follow suit, says broker UBS.
Surrey-based Crest took a £50mln land impairment and work-in-progress charge in its half-year numbers because of the impact on the ‘net realisable value’ of its landbank of the price assumptions.
NRV is a function of costs and selling prices, says UBS, and the builder is assuming deflation of minus 7.5% for house and minus 32% for commercial property.
The broker says while the possibility of other housebuilder’s taking doing the same cannot be ruled out, the assumptions are subjective and Crest appears to be being careful.
“We think Crest may have taken a somewhat more cautious approach," said the broker.
“Historically, better-realised prices vs the assumptions made at the time of NRV provisions have been booked through ordinary operating profit rather than as an exceptional charge.
“In that regard, NRV provisions may have the impact of favourably impacting profitability in future years, although cash flow would be unaffected by this.”
Crest shares were 4^ higher today at 213.8p, having fallen sharply yesterday.