UBS downgrades Crest Nicholson to 'sell'
By Michele Maatouk
Date: Friday 20 Jan 2023
(Sharecast News) - UBS downgraded housebuilder Crest Nicholson on Friday to 'sell' from 'neutral' as it pointed to unfavourable risk/reward.
The bank said that following a strong run in the shares - up 18% above pre-mini budget levels versus the sector up 8% to 25% - it sees an unfavourable risk/reward.
"In a scenario where house prices materially decline Crest Nicholson appears the most at risk of land impairments given its lower margins (15% versus sector circa 20%)," UBS said.
"We also see execution risk in the geographic rollout: (1) capital deployment in new markets, (2) market timing and (3) increasing overheads (guided +10% for FY23)."
The bank said that over the medium term, Crest's divisions are in areas where planning restrictions appear the most acute, which could constrain volume recovery and/or reduce intake margins on land approvals.
It noted the shares trade at around 30% discount to TNAV (CY23E), which initially appears cheap, but relative to SMID cap housebuilders does not reflect the higher risk.
UBS kept its 210p price target on the stock.
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