Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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August 21, 2023

CRST, LSL | Economy – house prices and activity falls, but affordability improves, Rightmove | Fortnight ahead

Company news

Crest Nicholson Holdings (CRST, 194p, £498m mkt cap)

South East focused mixed tenure housebuilder. Trading update.

Guidance: “FY (Oct) 23 adjusted PBT now expected to be around £50m” (previously c. £74m).

Trading: “Trading conditions for the housing market have worsened during the summer of this year. While pricing has remained resilient in a market with limited supply and few distressed sellers, the economic uncertainty is deterring prospective home movers. Transaction levels across the industry have weakened further, particularly in recent weeks. The Group does not therefore expect to see a material improvement in trading conditions before its year end at 31 October 2023”. At the interim results in June the group forecast a sales rate of 0.50 per site per week for H2. “For the seven weeks to 18 August this has been 0.25, representing a progressively deteriorating trend. Given this backdrop the group is also currently negotiating several bulk deals on appropriate commercial terms with partners where it has developed strong relationships over recent years. These transactions will provide support to volume delivery in future years”. The group has also recorded a further £4m cost increase in the second half at its legacy
scheme at Brightwells Yard, Farnham. “The Board remains committed to the FY23 dividend in line with prior year at 17.0p as announced in June 2023”.

Strategy: The group was able to add several sites to the land
portfolio in the first half and, as has been previously communicated, expects future land activity to reduce significantly. Management will also be reducing the overhead position in the next financial year and will be
incorporating the newly created East Anglia division into its existing Eastern division with revised boundaries. Yorkshire will remain unaffected given it is now a fully operational division, but the pace of growth and onboarding of further resources expected in this region will be revised to reflect the market conditions.

Outlook: “The Board remains positive and confident about the outlook for Crest Nicholson. While the current trading conditions are challenging, over the medium term it expects inflation to abate and mortgage rates start to reduce. In addition, the Group has a strong financial position and an experienced leadership team who are used to trading through downturns. The long-term structural shortfall of housing supply versus demand continues to increase and the Group has developed an attractive land portfolio”.

LSL Property Services (LSL, 245p, £255m)

Estate, lettings and property/financial services agent. Acquisition of TenetLime for up to £12,9m from Tenet Group. TenetLime operates a network providing services to 231 mortgage and protection advisers, operating within 133 appointed representative firms. Its advisers arranged c.£3.9bn of mortgages in 2022. The acquisition is being financed from LSL’s existing cash resources, with net cash at 30 June of £36m.

Economic data

Housing market. Average new seller asking prices have fallen by 1.9% in August to £364,895, the biggest fall in August since 2018, while the number of sales being agreed is now 15% lower than the more normal market in 2019, according to Rightmove. Buyers have been put off by economic conditions and choosing to go on holiday, according to the UK’s largest property portal. However it reports that activity in the first-time buyer sector is holding up better and down by only 10%, due in part to record rents and the scarcity of rental property. Lower asking prices, combined with increasing average earnings and the recent downward trend in mortgage rates are “tentative steps towards improved buyer affordability, although average prices are still £59,000 (19%) higher than in the pre-pandemic market of August 2019”. The average five-year fixed mortgage rate is now 5.81%, falling from 6.08% three weeks ago. The number of available properties is still 10% lower than at this time in 2019, “with agents reporting that realistically-priced homes in popular areas are tempting buyers who don’t want to miss out”. Rightmove data shows that homes which are priced right from the outset take less than half as long to find a buyer than those which require a subsequent asking price reduction”.

Rightmove: % monthly change in average asking prices

Fortnight ahead

Construction & property: company and economic news

Construction and property company and economic news

 

Prices are as at the previous day’s close. Where quoted, net debt is pre-IFRS16 (excluding leases) unless otherwise stated.

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