Crest Nicholson Holdings today warned that full-year adjusted profit before tax is now expected to be around £50.0m, a significant downgrade from previous guidance.
Crest Nicholson shares were down 10% at the time of writing on Monday.
The housebuilder cited a “poor trading environment” and further legacy costs at its Brightwells Yard development as negatively impacting performance.
The profit warning comes amidst a backdrop of high inflation, rising interest rates, and weakening housing market activity. Transaction levels have deteriorated in recent weeks, with the sales rate per outlet per week falling to just 0.25 in the 7 weeks to August 18, down from 0.50 in the first half.
First-time buyers and those looking to upgrade are being deterred by the rising cost of mortgages and lack of government support schemes. The company does not expect trading conditions to improve materially before year-end on 31st October.
Crest Nicholson revealed it is negotiating several bulk land deals to support future delivery volumes. However, management is taking action to reduce overheads and scale back divisional growth plans to reflect the tougher market.
The company remains committed to its full-year dividend but warned that land investment will be “significantly” lower going forward.
Despite the near-term challenges, Crest Nicholson stated it has a strong financial position and experienced leadership to navigate the downturn. It believes inflation will eventually abate and mortgage rates reduce.
The profit warning indicates the UK housing market continues to face major headwinds. While Crest Nicholson retains a positive medium-term outlook, investors should brace for further downgrades if conditions do not improve.
“Today’s profit warning from Crest Nicholson suggests rising interest rates and higher mortgage costs are really starting to bite,” said Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club.
“Crest Nicholson has seen trading conditions worsen significantly over the summer months. This means group pre-tax profit for the year is expected to come in around a third lower than previous expectations.
“The cost of borrowing has rocketed, and this has led to fewer homebuyers upsizing and to fewer first-time buyers. The end of the Help to Buy scheme has compounded these pressures, making it even harder for first-time buyers to get onto the housing ladder.
“The housing market is on very shaky foundations. Although inflation appears to be moderating, the Bank of England is expected to tighten the screw further in the coming months. As such, it seems unlikely that trading conditions for Crest Nicholson or its peers will improve any time soon.”