Housebuilder Crest Nicholson’s Shares Tumble Due to London Home Defects
Shares of the renowned housebuilder Crest Nicholson took a significant hit, plunging by as much as 12% early today. This sharp decline erased over £60 million from the company’s market capitalization. The sudden drop comes in the wake of an announcement from the housebuilder concerning “build defects” discovered in several of its London properties.
Crest Nicholson revealed that the defects were identified at four sites within its regeneration and London units, both of which were closed back in 2019. The company has laid out plans to address these issues over the forthcoming three years, with remediation efforts estimated to cost around £15 million. In a move to assure precise cost management on these repairs, Crest Nicholson has engaged the services of professional consultants.
The specific locations of the affected sites remain undisclosed at this time. However, the company has promised to provide a more detailed insight into the nature of these defects in June.
Market analysts have expressed their concerns following this revelation. One commentator from Investec described the decision to hire consultants as “unnerving,” highlighting the impact of uncertainty on remediation costs on the company’s shares. According to the analyst, “The shares reside at a significant discount to book value, but uncertainty around the ultimate cost for remediation will continue to weigh on the shares.”
Similarly, analysts at Peel Hunt pointed out that the involvement of consultants “clearly raises the prospect of costs [to fix the defects] increasing.” They added, “The further legacy issues outlined today are unlikely to encourage investors to form an orderly queue for the shares.”
The aftermath of this announcement saw Crest Nicholson’s shares plummet by 12.1% to a price of 197p, reducing the housebuilder’s market value by more than £60 million. This is not the first time the company’s shares have faced turbulence. A significant drop occurred in August following a stark profit warning, attributed to rapidly rising interest rates. Nonetheless, the shares had shown signs of recovery in recent months, buoyed by optimistic sentiments that the Bank of England might begin to reduce rates.
Despite the challenges presented by these defects, Crest Nicholson anticipates the construction of between 1,800 and 2,000 new homes within the year. The company expects a significant proportion of these developments, around two-thirds, to materialize in the latter half of the year. Additionally, the housebuilder forecasts flat sale prices for 2023.
The company also commented on the ongoing difficulties faced within the planning system, stating, “The planning system continues to be challenging.” Nevertheless, Crest Nicholson remains positive about its ability to navigate these hurdles, thanks to its robust land portfolio. “Our strong land portfolio with several quality sites acquired last year places us in a favorable position to mitigate planning delays and support future outlet growth,” the company remarked, indicating a forward-looking strategy to overcome current and future challenges.
This recent development serves as a reminder of the complexities and unpredictability inherent in the real estate and construction industries. Crest Nicholson’s proactive approach towards addressing and rectifying these defects, along with their strategic positioning for future growth, underscores their commitment to maintaining quality and trust with homebuyers and investors alike.
